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Despite an overall healthy economy, you might be wondering: Why is today’s market outlook telling a different story? The volatility we’ve seen draws down to a multitude of factors, and understanding those can help you gain more clarity on how they impact your retirement portfolio.READ THE ARTICLE
A domino effect: While there is a correlation between market activity and the economy, they don’t necessarily reflect one another. The stock market primarily focuses on corporate earnings and interest rates, and with interest rates hiking at a faster rate than we’ve seen in decades, it’s causing a headwind that pulls earnings down. At the same time, however, the market is now expecting and pricing in these increases (as well as inflation), which means any further damage should be limited.
Looking long-term: All this being said, where does that mean we could go from here? Analyzing overall valuation levels can provide insight, as they display the amount investors are willing to pay based on expected S&P 500 earnings. Since the beginning of the year, we’ve seen valuations drop two to four points due to interest rates increasing, which explains recent market dips. This inevitably causes concern for investors now, but sit tight. Interest rates and valuations are expected to return to pre-pandemic levels over the long-term, so remaining calm through today’s turbulent times in the short-term is key.
My two cents: What we are experiencing today is normal and cyclical. We may see further near-term losses (which cannot be timed), but should be taken advantage of when possible. Above all, the long-term is still positive.