If the stock market’s roller-coaster ride this year has your head spinning, you’re not alone. Major indices like the S&P 500 finished Q3 in positive territory, but a closer look reveals a complex story underneath the surface.

In this post, we’ll break down key market trends, examine what’s driving performance, and distill actionable guidance to help weather ongoing volatility.

Behind the S&P 500’s Double-Digit Gains

At first glance, the S&P 500’s 19% return year-to-date seems robust. However, that mainstream index only captures 500 of the largest US companies. A relatively small handful of tech giants, dubbed the Magnificent Seven, have propelled those gains.

This elite group including Apple, Nvidia, Google, Tesla and others hold outsized weight in the S&P 500 based on their massive market capitalization. Meanwhile, the remaining 493 constituents have lagged, posting modest losses around 3%.

An equal-weighted S&P 500 with less emphasis on the Big Tech names would’ve climbed just 7.6% through three quarters. This demonstrates the risk of narrow rallies when a few crowded stocks generate the bulk of returns.

Oil Prices Trend Upward

Geopolitical tensions and tight supply have driven oil steadily higher, with prices surging over 30% year-over-year. This upward march may continue near-term, but we urge caution chasing short-term spikes.

Surprisingly, US markets have shown resilience despite global headwinds. Meanwhile, volatility has taken a greater toll on international developed and emerging markets. Well-diversified portfolios following our guidance are faring well, up 5-7% this year.

What Inflation and Interest Rates Mean for You

Inflation remains top of mind for many investors. While consumer prices are elevated, we’re encouraged that annual inflation has fallen significantly from June 2022’s peak of 9.1%.

Many anticipate further Fed rate hikes to curb inflation, but the incremental quarter-point increases projected pose a limited threat to markets. Economists we follow believe a recession will hit Q1 of 2024, but that still remains to be seen.

Perspective is important when weighing rate impacts. While higher yields benefit savers, they simultaneously pressure borrowers. Your age and stage of life shape how you experience rising rates:

  • Younger folks who have experienced historically low interest rates don’t think mortgages will ever go back to the 3% level.
  • Middle-aged pre-retirees expect rates to plateau and eventually decline.
  • Older retirees recall much steeper historical rates. Current levels seem relatively tame by comparison.

Maintaining properly diversified portfolios and avoiding market timing knee-jerk reactions is key to navigating today’s dynamics.

Positioning For Volatility

With uncertainty abounding, many justifiably wonder how best to invest in the current climate. Trying to predict market bottoms or tops is futile. Instead, we suggest:

  • Keep sufficient cash reserves earning 4-5% interest
  • Hold dividend-paying stocks with solid fundamentals
  • Maintain fixed income holdings to balance equities
  • Revisit asset allocation to align with your risk tolerance
  • Discuss concerns with a trusted advisor

While pullbacks are likely in coming months, patients who stay invested may be rewarded when the next bull run emerges. By diversifying and avoiding panic selling, you can position yourself to participate in future rebounds.

As always, if you need guidance creating a customized investment strategy or reviewing your portfolio, we’re here to help. Please contact us to schedule a complimentary consultation.

This article is intended for educational purposes only and should not be considered as financial advice.