Quick answer:
Probably not. Stay invested, stay diversified, and stay active in the world, working for the things you care about!
Longer answer:
The market’s not doing too badly at the moment, actually. The S&P 500 index, often used as a measure of the American stock market as a whole, closed today back where it was around Thanksgiving last year — so it’s given back three months’ worth of gains, but is still up significantly over the last 12 months.
While times like this in the market are never fun, the market is not “crashing” … yet.
The markets are more volatile than usual, to be clear. The CBOE Volatility Index, commonly known as “the VIX”, is “a leading measure of … near-term volatility”; while the VIX had been pretty calm so far this year, it jumped recently, more than doubling in the last couple of weeks (see this chart). But this should probably not be a huge surprise, since in addition to military strikes in Iran, we have continued confusion about tariffs, and terrible employment numbers. Any of these factors would have caused markets to wobble; all of them together have caused a lot of confusion. On the other hand, the moves we’re seeing in the S&P 500 have been limited to less than 2% in any given day — for comparison, in March of 2020, as we began to realize that COVID was going to be a real problem, the index moved more than 3% (either up or down) on 16 of that month’s 22 trading days!
One of my favorite market commentators these days is Liz Ann Sonders, Chief Investment Strategist at Schwab. In a recent episode of Schwab’s podcast On Investing, posted on February 27th, she pointed out that while the S&P 500 index hadn’t gone down more than about 3% so far this year, “the average member within the S&P has had a 12% drawdown”. So while things look pretty calm on the surface of the index, and the losses aren’t so bad, the average stock in the index has fallen into “correction” territory. This sort of “churn and rotation”, in Sonders’ words, might make this an opportunity for active management to shine; fortunately our client portfolios have both active and passive strategies, so we can benefit from both styles.
We have often written that the best thing for us to do in moments of unusual market action is to stick to our long-term plan, perhaps taking an opportunity to rebalance our accounts to their target allocations. Sonders made a similar point in another recent podcast episode: “[For] longer-term investors that take a very disciplined approach … volatility can often present itself as an opportunity to rebalance. So I would say the ‘re-’ word that is applicable for long-term investors to volatility is not ‘react’ but consider rebalancing.” As hard as it can be when it seems like everything is crumbling around us, the best investment strategy to follow right now is the one we set up when things were calmer. Let’s not allow this new war to make us panic and “take dramatic action” in your investment accounts — instead, let’s take this opportunity to engage with the world in order to encourage peace, to support our families and communities, and to build a better world for tomorrow.
