Recent Market Volatility
In the last ten trading sessions, the S&P 500 dropped 10% from its all-time high set January 26th and volatility, largely absent the past two years, returned with a vengeance. While we knew a correction was long overdue—the last one was in January of 2016—the violent nature of this turn was stunning. Many investors had been lulled into complacency after 13 consecutive months of positive returns, the longest streak in history.
Although many theories abound, we think the selloff resulted from the market properly reassessing the risk of inflation, given the strong employment and wage growth reports last week, and the implications of higher inflation for interest rates and Fed policy going forward.