Headlines and the Predictability of Markets

Wooster Corthell |

To our clients and associates,

The main market headline of the first quarter is that the war in Ukraine is increasing inflation concerns in the broader economy. This is happening as the West continues to increase sanctions against commodity-rich Russia. Despite an initial spike in oil of more than 30%, it has nearly returned to pre-invasion levels.

Investors often look at headlines, see the market reaction and then fear the worst. The problem of course is these trends can and often do change.

Take the 2020 Covid selloff. The market bottomed on March 23rd that year, a time when the US only had some 52,000 cases. Predictions of a global pandemic came true and by year end, despite having over 21 million cases in the US, the markets rallied nearly 70% from its lows! In October 2014 news broke that the first case of Ebola had been confirmed in the US. Fears of a deadly pandemic hit the market (sound familiar?) and the market dropped 6% in a week. Fortunately, there never was a true Ebola pandemic, yet over the next 12 months the S&P 500 Total Return was a paltry 0.71%. You would think based on the outcomes of COVID and the Ebola pandemics, the market returns were listed in the wrong periods.

How has war historically affected the markets? According to FactSet, from Pearl Harbor to now there have been 12 wars of note (Gulf War, 9/11, Iraq War, etc.).Twelve-months after each war began, the S&P 500 was up 75% of the time with an average return of 8.6%.

History suggests headlines and market volatility can be gut wrenching yet do very little in the way of providing forecasts. Famed investor Peter Lynch said, “The trick is not to learn to trust your gut feelings, but rather to discipline yourself to ignore them.” This is why we recommend staying away from the many market headlines and instead, staying the course.

Wishing you well,

Matt Corthell

Past performance is not indicative of future performance. Loss of principal and/or loss of portfolio value are possible.