Looking back on the first quarter, we think of the heart-wrenching situation that continues to unfold in Ukraine. The growing conflict has led to a shocking number of casualties, a profound humanitarian crisis, and historic sanctions imposed by Western powers on Russia. As the world grapples with the effects of inflation, high energy costs, and the pandemic, this geopolitical event exacerbates investors’ worries and creates market uncertainty.

What history reveals about market uncertainty

The S&P 500 index ended 2021 up 26.9%, continuing its strong performance since the COVID pandemic first rocked the markets. Enter 2022 and the confluence of recent unsettling events, and it’s little surprise that this index lost 4.95% for the first quarter. Despite the impact that the war in Ukraine has had on the markets recently, this chart illustrates that volatility due to geopolitical events has historically been short-lived.

Market uncertainty

After extended periods of low volatility since March 2009, investors might forget how commonplace market volatility has been historically. Investor behavior is often driven by emotional reactions to news and how that news aligns with expectations. History has shown that uncertainty fuels market volatility, thereby driving less-disciplined investors to exit riskier investments, often with adverse effects.

Uncertainty is factored into your financial plan

As financial advisors, we understand that there will be significant market events along the way with our clients, so we incorporate that assumption into our long-term returns projections and financial planning process.  Though we don’t know when the shake-ups will come or how long they will last, we do know to expect them as part of your financial journey.

This article is a reposting of the Q1’22 quarterly letter we send to our clients.  We feel it is important to share the perspective of historic volatility on the markets for everyone’s benefit.