Market Commentary September

Market volatility has returned with a vengeance.

After a brief rally during the first part of summer, significant volatility has returned to the financial markets once more.

Last week’s consumer price index report was hotter than expected—core inflation climbed 0.6% in August on a month-over-month basis. The stronger than anticipated inflation number led to a steep sell-off in both stocks and bonds. The fear is an even more aggressive Fed will raise interest rates ever higher and drive the U.S. economy into a recession.

The markets are in a tug-of-war between inflation concerns and recession woes. During this period of great uncertainty, volatility is inevitable. From mid-June to mid-August, we saw the good side of volatility. And over the last months, we have seen the bad side of volatility.

Market volatility is unsettling, but historically not unusual. Since 1950 there have been 12 markets declines of 20% or more. The average decline was 33% and the average duration was 12 months.Sell-offs always come to an end and it’s important to note that once stocks bottomed, they rallied sharply over shorter time periods. On average, the S&P 500 returned 13% in the month following the bottom, 35% in the six months following the bottom, and 65% in the 12 months following the bottom. In other words, market rebounds tend to be front-loaded, which is why market timing simply does not work. Time in the market is what matters.

When markets are rough, the best ballast is the combination of a diversified portfolio and a prudent investment discipline. At the Foundation, we remain focused on growing your dollars for ministry today and tomorrow.

Gary W. Kidwell
President