Embrace the Volatility

The current economic worries and geopolitical uncertainty have put many investors on the defensive – and understandably so.  Surging inflation, rising interest rates, continuing Covid disruption (especially in Asia), and now a serious war in Eastern Europe are presenting a unique mix of challenges for the global economy.  Nervous investors have triggered heightened volatility in equity markets throughout the first quarter of 2022.

However, looking beyond the depressing news of recent months, corporate America as a whole is thriving.  Fourth-quarter operating earnings for the companies in the S&P 500 Index came in at an all-time high and are projected to continue growing through 2022.  Additionally, unemployment is at an extreme low.  These days, anybody who wants a job has no trouble finding one, and it comes with a generous paycheck to boot.  But no one seems to be talking about any of that.  The grim headlines seem to be carrying the day in the equity markets.

When economic positives are under-appreciated, and negative news stories drive sharp selling pressure, that usually means it’s a good time to be bullish.  The current volatility can be seen as an opportunity to take long-term positions in sectors that may have been unfairly punished by the tide of pessimism.  For instance, information technology is an area that has been beaten down as of late; the S&P Technology Index fell 10.1% over the first quarter of 2022.  But most everyone agrees that the digital transformation sweeping our world is not going to slow down.  On the contrary, technology investment will likely accelerate since tech is seen as a disinflationary influence on the economy.  Investors should embrace the volatility and take positions in solid companies when their stock prices decline.

1 April 2022