This Week in Review | Market Volatility, Energy Markets, US Inflation

Transcript

Alexander Leiken:

Hello, and welcome to This Week in Review. This weekly segment is designed to highlight a few important developments you may have missed this week, what they may mean for markets and most importantly, the potential impact for investors. To stay up to date with our latest market insights, subscribe to our YouTube channel or visit Fisher investments.com. Now let's review what happened this week.

First, we'll address recent market volatility.

Markets have seen some negative volatility recently, with headlines focused primarily on the Middle East conflict and rising oil prices. When markets dip, many try to pinpoint a specific cause. But here's the reality: Market ups and downs, whether day to day pullbacks or corrections, are completely normal in bull markets. Volatility can occur for any reason or for no particular reason at all, even in years when stocks perform well. Since the start of 2024, for example, global stocks have risen over 40%. But these strong returns were not a straight climb. Along the way, we've seen 11 pullbacks and a significant correction where stocks fell nearly 20%. While these prior bouts of negative volatility probably unsettled some investors, global stocks eventually rebounded to record highs. This highlights the importance of patience and sticking to a strategy. We remain optimistic about stocks this year, but it wouldn't be surprising to see more volatility as investor sentiment reacts to economic and political developments. It's important to remember that volatility works both ways, and that investors that stay disciplined have a history of being rewarded. Remember, short-term fluctuations are simply part of investing in stocks. A year of solid gains will often hold significant market drops, but over time, this volatility is what's tied to stocks historically higher returns.

Next, an update on Energy markets.

Last week, US and Israeli forces launched strikes on targets in Iran. In response, Iran carried out strikes, hitting military bases, Energy infrastructure and other key sites in neighboring countries. Iran's missile and drone attacks have declined in recent days, but the country continues to threaten commercial shipping, effectively closing the Strait of Hormuz. War is a tragedy, and our thoughts are with those affected. Here, though, we focus on how geopolitical events impact markets. The Middle East accounts for around 30% of global crude oil production, and about two-thirds of that is shipped through the Strait of Hormuz. As such, conflicts in the region can contribute to significant Energy price volatility. With the situation still evolving rapidly, oil prices have traded from about $70 per barrel pre-conflict, to about $100 per barrel through the market close on March 12th. While it's anyone's guess where oil prices will go in the coming days and weeks, we would remind investors that sustained oil price increases tied to regional conflicts are quite rare. After all, the market is twice in recent years settled down quickly after an initial set of strikes between the US, Israel and Iran. A sustained spike in oil prices that lasts for months or longer can hurt the global economy. But it's unlikely, in our view. For example, in March 2022, Brent crude hit a high of $133 per barrel following Russia's full scale invasion of Ukraine, and it remained elevated for months. While high oil prices likely contributed to the 2022 bear market, it was not the sole driver. Rate hikes, excessive money supply growth during the pandemic and post-COVID supply chain disruptions also played a big role. And that bear market was historically short and shallow, even though the conflict tragically continues. Today, economic fundamentals such as a steepening global yield curve, healthy loan growth and historically moderate money supply growth all appear supportive of a continued bull market.

Finally, US CPI inflation data.

On Wednesday, the Bureau of Labor Statistics released the latest US Consumer Price Index data. February's CPI report showed that headline inflation remained at 2.4% year-over-year, matching expectations. The latest print continues a moderate inflation trend that we've seen for over a year now. Notably, current inflation remains slightly below the long-term annualized average of around 3%. We know rising costs can be stressful and cause real hardships, but some inflation is normal. It reflects a growing economy and incentivizes continued spending and investment. While some fear a return to high inflation, we think it's unlikely since global money supply growth remains pretty moderate. Remember, inflation is typically driven by too much money chasing too few goods and services. The Covid era supply chain disruptions and stimulus efforts that stoked inflation are long in the rear view mirror. Importantly for investors, stocks have historically been a reliable hedge against inflation. The long-term average returns of the stock market of around 10% far outstrip inflation's 3%. We believe that owning stocks can help offset inflation, while increasing the likelihood of investors reaching their long-term financial goals.

Thanks for tuning in to This Week in Review.

If you're looking for more insights, then don't miss our other series, 3 Things You Need to Know this Week, released every Monday. You can also visit FisherInvestments.com anytime for our latest thoughts on markets. Thanks again for joining us, and don't forget to hit "Like" and "Subscribe."