Staying Focused: Maintaining a Long-Term Perspective Amid Market Uncertainty

As we move through March, the word “uncertainty” continues to dominate market discussions, with ongoing volatility putting investors on edge. In fact, the Federal Reserve’s Beige Book recently mentioned this term a record 47 times, surpassing the number during the COVID-19 pandemic and the 2008-09 financial crisis – leaving investors wondering how to respond to this unpredictable market environment.

So, what is driving this heightened uncertainty? The political landscape plays a significant role, with policy decisions in the U.S. stirring volatility in both domestic and international markets. At the same time, investors are grappling with shifting economic and market conditions that contribute to unease. The U.S. stock market just experienced a correction, dropping by more than 10% from its high in just a few weeks. While this may feel unnerving, it is important to keep the broader picture in mind. Market corrections, though uncomfortable, are a normal part of the investing cycle.

Looking back to 2023 and 2024, the stock market delivered impressive returns, with the S&P 500 gaining over 20% each year. But even in those strong years, we saw meaningful selloffs. For example, in the middle of 2023, the market dropped by more than 8% over a three-month span. These fluctuations serve as a reminder that market volatility is inevitable and often leads to opportunities for long-term investors who maintain perspective.

The historical context of market corrections can also provide valuable insights. Over the years, we have witnessed numerous corrections, some of which have turned into bear markets. The pandemic triggered a dramatic 35% drop in just five weeks, yet it also marked the beginning of a strong market recovery, well in advance of economic resurgence. Similarly, the global financial crisis saw a significant decline, but the market strongly rebounded in the years that followed. These examples underscore the importance of staying the course and resisting the urge to make rash decisions based on short-term market movements.

Considering the current volatility, one key strategy for managing risk is diversification. A diversified portfolio can help to shield investors from downturns in one area by providing exposure to other, potentially stronger sectors. This strategy has proven effective as bond values often rise while stocks experience declines, offering more stability during periods of uncertainty. A well-balanced portfolio, spread across various sectors, styles and regions, remains one of the best ways to manage risk and achieve long-term success.

Even within periods of market turbulence, there are opportunities to be found. For example, international markets, which have underperformed relative to the U.S. for many years, are beginning to show signs of recovery. The Euro STOXX 50 recently surpassed its previous all-time high from the year 2000, a significant milestone that highlights the potential of European stocks. Similarly, markets in China have shown recent robust performance, offering additional growth prospects for investors who are willing to look beyond U.S. borders.

While the “Magnificent Seven” have faced recent setbacks, sectors such as energy, financials and bonds have performed well. The key takeaway is that no single sector should dominate a portfolio. Concentrated bets on individual stocks, particularly in volatile sectors like technology, can lead to significant losses, as we witnessed from 2000-02.

As we navigate through 2025, it is clear that uncertainty will continue to be a defining theme. Staying focused on long-term goals and maintaining a diversified strategy can help investors manage risk and position themselves for future growth. If you have concerns about current market conditions or want to discuss strategies for navigating this uncertainty, we are here to help.