Riding the Market Waves

Navigating the crests and valleys of a turbulent market.

The last three years have seen extraordinary market turbulence and ever-changing market narratives – from COVID-19 to inflation, rising interest rates to geopolitical instability.

Several regional banks received support from the U.S. government in the first quarter of 2023. As interest rates climbed, layoffs at major tech companies like Google become everyday events. And speculations of a potential recession pervaded most of this year and continue loom over all activity. Sometimes it’s hard to know which market indicators to pay attention to, and how or when to react (if at all) to reduce the risk in your portfolio.

A look back

A quick look back reveals that the current market turbulence and potential recession are nothing like the 2008-2009 financial crisis. In stark contrast to 15 years ago the consumer and housing market are in far better shape today. There are fewer risky subprime mortgages, and oversight on lending has increased to ensure that the mistakes that caused the 2008 crisis don’t reoccur.

Another notable, recent downturn was the fast two-month market contraction in 2020 as the onset of COVID-19 reached worldwide proportions. And let’s not forget double-digit inflation in the 1970s, in part due to commodity price jumps, oil embargos, imposed wages and price controls. This prompted the Federal Reserve to raise interest rates to historic highs in the early 1980s, triggering two back-to-back recessions in 1980 and 1981-82. A strategic move on the Fed’s part to slow the economy and consequently shrink inflation.

In 2023, none of the above scenarios exist in the same way. Unemployment is steady at 3.5%, inflation is headed downward, interest rates have peaked since the sharp increase in 2022, and corporations overall are more secure. Many strong fundamentals are underpinning the entire market, and while no one knows what the future may hold, any 2023 or 2024 downturn is expected to be short. Many corporate CEOs predict a “soft landing” as the outcome most likely.

Undoubtedly, turbulence and recession worries can make you want to evaluate your portfolio to make sure you’re well-positioned to weather the storm ahead.