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Weathering volatility


Ameriprise Global Asset Allocation Committee

June 13, 2022

Key Points

  • Stocks are struggling with higher interest rates, tightening monetary policies, high inflation, a war in Ukraine, growing recession fears, and concerns corporate profitability could slow more considerably.
  • Stabilizing interest rates and more clarity on when the Fed may slow rate hikes could reduce market volatility over time.
  • Elevated energy prices are the most significant risk to our economic assessment. However, U.S. economic conditions support a still positive view of growth.
  • Ways to mitigate volatility in a portfolio include asset diversification, incorporating quality attributes across investments, and utilizing Alternative Strategies.
  • Maintaining discipline, utilizing a systematic dollar-cost averaging approach, and incorporating intelligent drawdown strategies can help investors navigate stock drawdowns.

Understandably, investors may feel uncertain about their investment portfolio against the backdrop of elevated stock and bond volatility, steep year-to-date losses, and a macroeconomic environment that remains highly uncertain. The Global Asset Allocation Committee is rigorously and continuously monitoring market events and reviewing current conditions in relation to its allocation advice. Below is a brief update on our current thinking regarding market/economic dynamics, specific equity and fixed income considerations, and our overall allocation advice to help you weather this challenging period in the market.


Market Brief — What might cut the volatility?


Major U.S. stock averages are currently trading well off their 52-week highs, with several indices trading deep into a bear market (defined by a decline of 20% or more from a recent high). The sharp rise in interest rates, record-high inflation pressures, and central bankers around the world removing monetary accommodation have sent both stocks and bond prices sliding lower this year. In addition, an unexpected war in Ukraine, causing a surge in energy and food prices, along with growing recession odds, have increased fears consumers will retrench their spending, causing corporate profits to slow more than expected.


More recently, equity pressure has included a broader array of areas, such as mega-cap technology stocks and retailers that had benefited during the pandemic. However, wider selling pressure across some of the market's last strongholds is often a hallmark of bear markets. As uncomfortable as the drawdown is to endure, stock selling has been orderly and, in our view, helping clear out the excessive optimism that had washed through stock prices following the pandemic bottom.
But calling a market bottom is a fool's errand. Often during more prolonged bear markets, stock prices can rally substantially for a period, only to fall to lower lows. But history is very clear on bear markets. Once the bottom is reached, stock returns tend to be strong over the next six and twelve months, with positive returns over the next one, three, and five years. In our view, investors should be thinking less about how much further stock prices could fall and more about properly weathering the volatility today so they can be in a position to benefit from the eventual rebound.


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