Volatility/Turbulence/Uncertainty

These three words, while all different, are all applicable to the near term outlook for the stock and bond markets.  It seems that the equity markets are being buffeted by more frequent and larger percentage changes than in recent memory.  Commodity prices have sustained large price changes with major declines in the price of oil and many other raw materials.  These changes, in turn, are having a material impact on the outlook for many of the world’s economies, including China and many emerging countries.

If this isn’t enough, there may be a major turn in the bond markets on the horizon.  Yields have been on a gradual down slope for the last 30 years.  With short term rates at approximately zero, a shift to rising interest rates is becoming more likely.

Looking beyond stocks and bonds, consider the political climate.  It used to be generally accepted that democracy was the art of compromise.  Now we have some of our elected officials adopting a “my way or the highway” approach, including threats to shut down the government and exercises in parliamentary legerdemain as the preferred method of moving policies forward, despite the apparent wishes of the electorate.

All of this seems to be compounded by an overwrought media that tends to exacerbate every move and revel in large price changes. No wonder investors are jittery.

What to do?  Remember, over the last 100 years the world has gone through a number of major upheavals.  While markets have often responded with sharp moves in both directions, over time, a strategy of investment calm, even in the midst of great uncertainty, has proven to be fruitful.

All comments and suggestions are welcome.

Walter J. Kirchberger, CFA®