The Russia-Ukraine conflict remains the world’s top concern – and rightly so. We feel that society should never accept war as suitable or get used to living with it. Humanity should strive for better than that. So for this market update, I must draw a distinction between an ideal of what should be and the reality of the past nine trading days in the financial markets.
Although subject to short-term emotion, the markets behave reasonably rationally in the intermediate-to-long run. They are a forward-looking mechanism. After an initial shock, such as Russia’s invasion of Ukraine on February 24, market participants collect themselves, study other data besides the immediate news, and look ahead to the future.
This has happened through history and is happening again now. Since March 15, the U.S. stock market bounced impressively. At this past Friday’s close of business, the S&P 500 stock index was down only 4.35% year-to-date, compared to being down about 14% year-to-date at the low point on February 24. (Incidentally, since 1980 the average intra-year decline in the S&P 500 has been 14%.)
As the past month shows, stock market volatility happens on both the downside and upside. We consider both when designing investment plans. We must weigh the downside risks with the upside potential. That balance is unique to different people based on their risk tolerance, investment time horizon, and other goals.
The world is still in thick, spooky woods. Uncertainty abounds. But as an investor, keep heart because the markets can move up just as they can move down.