Inflation and interest rates.
The majority of the market movements these days are being driven by a single topic: inflation. Inflation keeps cruising at near double-digit rates, as the Federal Reserve responds with higher rates and tighter policy. The result is market volatility as investors act on conflicting forecasts of an impending recession or easing of inflation.
Until we have additional inflation numbers that demonstrate that tighter monetary policy is having its intended effect of bringing price increases back down, volatility in the markets will persist. The ongoing high wire act for Fed Chair Jay Powell is certainly going to be difficult, but not impossible, to pull off. He needs to bring inflation down with the minimum amount of tightening possible to achieve the soft landing we all so desperately want. Forecasters are continuing to stress how difficult this balance will be to achieve.
It is likely the market will prove a leading indicator and will recover before we are officially out of the woods on both inflation and economic growth, which is why remaining invested for the duration of the business cycle is so important. It is extremely difficult to call the tops and bottoms of markets, especially when volatility is as high as it is now. Investors tend towards making investment decisions based upon emotion rather than a specific plan. The key is to invest for the long term and hold the line during times when markets are most in doubt.