- Diversification remains a strength – Despite U.S. stock market declines, globally diversified, multi-asset portfolios have held up, with gains in international markets, value stocks, and real assets helping to offset volatility.
- Economic data presents mixed signals – Inflation remains elevated but not worsening, while the labor market continues to show resilience. Consumer sentiment is weaker than economic fundamentals, making spending trends a key factor to watch.
- Volatility is normal and brings opportunity – Market pullbacks are inevitable, but staying invested, diversified, and disciplined is key to long-term success. Historical data shows that patience and a steady approach are rewarded over time.
Tough Market Week, but Diversification Proves Its Value
It was a challenging week for the stock market—its worst since 2023. The S&P 500 officially entered correction territory, down more than 10% from its highs, and is now off about 4% for the year. Meanwhile, the "Magnificent 7" has fallen 20% from its peak to its recent low, placing it in bear market territory.
However, this is where diversification continues to demonstrate its value. While U.S. stocks have struggled, globally diversified, multi-asset portfolios have remained resilient. Depending on the asset mix, many globally diversified portfolios are still hovering around slight gains for the year. International markets, value stocks, and real assets have provided positive contributions. Even gold, often viewed as a safe haven, hit an all-time high last week. It is also worth noting that most U.S. economic sectors remain positive for the year, despite recent volatility.
Economic Data: Mixed Signals, but No Red Flags
Last week’s economic data provided plenty to consider. Sentiment surveys reflected growing concerns about both the economy and inflation, with the University of Michigan’s survey showing the highest inflation expectations in decades. Yet, when looking at hard economic data, the reality is not as dire as consumers seem to believe. Inflation reports largely met or slightly beat expectations—while still elevated, they were not worse than anticipated.
The Consumer Price Index (CPI) came in at 2.8% year-over-year, with core CPI (excluding food and energy) at 3.1%. The median CPI was 3.5%, and the Fed’s closely watched "Supercore" inflation measure (which strips out food, energy, goods, and housing rents) was running at 3.8%. These levels suggest that while inflation remains sticky, it is not spiraling out of control—though they also do not support an imminent Fed rate cut.
On the labor front, last week’s JOLTS report showed a still-healthy job market. However, this was likely the last "clean" read before political and policy-driven factors—such as government workforce reductions and private sector adjustments due to trade uncertainties—start showing up in the data. While consumer sentiment appears weaker than actual economic conditions, it remains a critical factor to watch, given that consumer spending accounts for roughly two-thirds of GDP.
Looking Ahead: Key Data on Consumers and Housing
This week will offer fresh insights into the consumer, with the February Retail Sales report on Monday. We will also get housing data, another crucial piece of the economic puzzle. The Fed meets on Wednesday, but no changes to interest rates are expected. That said, mortgage rates have been declining, which has provided some support to the housing market.
Volatility: A Fee, Not a Fine
Market volatility is never comfortable, but it is a fundamental part of investing. Sound, diversified portfolios are built with the understanding that market pullbacks are not just probable, but inevitable. Historically, markets decline 5% about once every 1.1 years, 10% every 1.6 years, and 15% every 2.5 years. A full bear market—a 20% decline—happens roughly every four years, typically during recessions.
While the economy is showing some signs of softening, current conditions look more like a "growth scare" rather than a full-blown recessionary storm. These headwinds, while concerning, are not outright hurricanes. Volatility should be viewed as a fee for long-term participation in markets, not a penalty. The ability to endure volatility is what ultimately allows investors to reap the long-term rewards of wealth creation. Importantly, volatility can also present opportunities—helping to enhance returns through disciplined rebalancing and strategic adjustments.
For long-term investors, staying committed to a well-constructed plan remains the best course of action. The markets may be experiencing turbulence, but history reminds us that resilience and patience are rewarded over time.
Final Thoughts:
Navigating market volatility requires perspective and discipline. Investors who stay invested, diversified, and disciplined by staying focused on their long-term goals tend to come out ahead.
if you have any questions, please don’t hesitate to reach out to us at strategists@brinkercapital.com or at rusty@orion.com. Thank you for your time and trust.