Market Update: Market Pullbacks, Geopolitical Risk, and Inflation








This is Brad Barrie, Chief Investment Office and Portfolio Manager with Dynamic Wealth Group.  Welcome to this market and economic update. In this video, we’ll discuss the recent market pullback and what’s driving investor concerns.

Specifically, the market fell 2.5% during the first two weeks of the second quarter after beginning the year with a historically strong return. This was primarily due to changing expectations around inflation and the Fed, as well as escalating geopolitical tensions in the Middle East.

Over the next few minutes, we’ll discuss all of these topics and explain how investors can keep them in perspective.

First, the recent attack by Iran on Israel resulted in a market decline as investors worried about worsening tensions in the Middle East.

While the situation is still unfolding, the initial attack of hundreds of drones and missiles launched from Iran appears to be over. Israel and its allies, including the United States, were given ample time to deploy countermeasures. At this point, many hope that both nations will show restraint to prevent an all-out conflict.

Without diminishing the severity of regional conflicts, the loss of life, or the destruction that has been caused over the past few years, many investors may wonder how these conflicts impact the global economy and their portfolios.

History shows that while there can be short-term market swings when these events occur, markets also tend to stabilize and fully recover within a year or so. However, vents such as 9/11 and the war in Ukraine did take longer for a full recovery. 

It is also worth noting, as we have discussed in the past, that there are many variables (endless really) that can impact the market on a day-to-day basis.  And frequent followers, also know, I am a key believer in “Preparing for the future, and not predicting the future.”

Thus, while geopolitical events are important for many reasons, it’s critical for investors to not overreact with their portfolios.  My over 2-decades experience as a financial professional has taught me that making logical, fact-based financial decisions, is better than emotional fear-based decisions.

Second, investors have also been concerned in recent weeks due to stubborn inflation data. The latest CPI numbers, for instance, show that headline inflation worsened on a year-over-year basis while core inflation has barely budged.

One reason for this is worse-than-expected shelter inflation, which is a measure of rents and housing payments. The deceleration in housing costs that many economists hoped for has not fully materialized in the data just yet.

This had led markets to expect fewer rate cuts this year. At the same time, market-based expectations have swung 180 degrees since the start of the year when many believed the Fed would have to rapidly cut rates if a recession were to occur. Instead, the economy has remained strong, leading investors to rethink their forecasts.

All along, the Fed’s forecasts have shown that three cuts are possible this year. Regardless of the exact timing and number, this still represents a reversal of the rapid rate hikes that occurred from 2022 to mid 2023. Investors should continue to focus on the bigger picture rather than the specific timing and size of cuts.

Finally, it’s important to keep the recent market pullback in perspective. In general, the market experiences several major pullbacks each year as shown with the red dots on this chart. And yet, history shows that markets tend to recover and end on a positive note, as shown in the dark blue bars. This is why investing with a long-time horizon is so important in order to benefit from recoveries and bull market expansions.

This chart also illustrates why diversification and having investments that are non-correlated to the stock market is so important.  You can see many years where there are double digit drawdowns, this can be extremely painful for investors, and lead to those emotional fear-based decisions.  Having a truly diversified portfolio built to your time frame and risk tolerance is key. 

We’ve only scratched the surface on these important topics, but we hope you found these insights valuable. If you are a financial advisor and would like more information on our Multi-Dimensional Approach towards asset management, please visit our website DynamicWG.com, or reach out directly by emailing us at:  Info@DynamicWG.com.  If you are an individual investor, we are happy to address any questions you may have and put you in touch with a qualified advisor if so desired.   Until next time, take care everyone, and make smart, logical & fact-based financial decisions.








Disclaimer:

Clearnomics and Dynamic Wealth Group, LLC are not affiliated entities.  No part of this should be taken as investment advice.  Consult your financial advisor for specific investment recommendations tailored to your specific situation. 

Dynamic Wealth Group (“Dynamic”) is an SEC registered investment adviser. SEC registration does not constitute an endorsement of Dynamic by the SEC, nor does it indicate that Dynamic has attained a particular level of skill or ability. This material prepared by Dynamic is for informational purposes only. It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy, or investment product. Opinions expressed by Dynamic are based on economic or market conditions at the time this material was written. Economies and markets fluctuate. Actual economic or market events may turn out differently than anticipated. Facts presented have been obtained from sources believed to be reliable. Dynamic, however, cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source.

Dynamic does not provide tax or legal advice, and nothing contained in these materials should be taken as tax or legal advice.

Any reference to an index is included for illustrative purposes only, as an index is not a security in which an investment can be made. Indices are unmanaged vehicles that serve as market indicators and do not account for the deduction of management fees and/or transaction costs generally associated with investable products. Past performance is no guarantee of future results. Actual returns may be lower.

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