February 2022 Market Commentary

The uncertainty around the Russian invasion and concerns around the Fed’s hawkish pivot to address inflation concerns have pressured equities this year. For example, the S&P 500 is now in correction territory (falling 10% from its peak). Historically, market corrections for the S&P 500 occur about once every 7-8 months and since we hadn’t seen one since early 2020, we were overdue. Market reactions to war and crisis events can be tricky and hard to quantify. Each one is also different, happening under different market and economic conditions with different factors at play. If we look at past market reactions, you can see that returns on the S&P 500 differed by event but were largely unaffected one year later. We do note that the 9/11 attack also coincided with the dot-com bubble, so attributing the 1-year return solely to that event might be misleading.

There is a lot of anxiety about the current equity sell-off. But, it’s a good reminder that the S&P 500 has an average intra-year drawdown of 14% since 1980, yet still generated a positive return in 35 out of 42 years. Market volatility is a normal part of investing.

In summary, trying to anticipate what may happen is extremely difficult. To further extrapolate the market impact is even harder. With market risks rising, we continue to anticipate more volatility in the near term. Any disruption to current expectations could be a headwind for stocks, and with high stock market valuations at the start of this pullback, this could amplify any volatility. We maintain that diversification and staying invested is the key in this market: