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Market Volatility: A Look Past and Forward


January 26, 2022

Market indices have recently demonstrated higher than normal levels of volatility, causing many to question the sources. While no one can predict when such volatility will abate, The Mather Group, LLC (TMG) would like to offer an explanation of some of the potential variables driving it. More specifically, these would include pending interest rate hikes by the Federal Reserve Board (Fed); rising geopolitical risk in Eastern Europe; continued inflationary pressures; and lingering supply chain challenges. Let's take each of these factors in turn.

The Fed has assuredly signaled its near-term intentions to both pare back its monthly bond purchases and to begin raising interest rates. Markets are obviously concerned that such a reduction in liquidity will affect the risk preferences of equity investors. However, while many pundits are focusing on this potential liquidity issue, it appears that financial history does not fully support their narrative.

More specifically, as shown in the table below, during the 13 Fed rate hikes of 1% or more occurring since 1962, the S&P 500 Index rose in most instances despite these hikes. Thus, while the Fed, on average, lifted the 10-year Treasury yield by 2.9 points, the S&P 500 rose, too, by an average of 17.3% per annum. Overall, the S&P 500 climbed in 78.6% of the years when these Fed hikes were underway. So, while Fed rate hikes are not to be ignored, of course, their relative contribution to market volatility has been mostly to the upside during the past 60 years.

Higher Rates Bullish For Stocks

Rising geopolitical risk in Eastern Europe, namely Ukraine, is also a strongly suspected driver of recent market volatility. It is natural that concerns about potential strife there remain a source of uncertainty. The prospective level, duration, and mix of military initiatives could determine resultant market responses, if conflict were to occur. However, while the history of market responses to prior Soviet/Russian invasions is somewhat sparse (thankfully!), they appear to be less challenging than might appear initially. As shown in the table below, three such Soviet/Russian invasions have occurred during the last 60 years. At the 1-, 3- and 6-month periods after each incursion, the S&P 500 has shown its resiliency with respect to performance. No, history can never be a guarantee of future performance, but our markets have not appeared to decline strongly when such invasions have unfortunately occurred. Let's hope there will not be a fourth event added to this table.

With the Fed Chairman's abandonment of the word "transitory" when describing rising price levels, the specter of long-term inflation appears to be a strong contributor to recent market volatility. The basis of inflation measurement in the U.S. is the Consumer Price Index (CPI), which rose at an annualized rate of 7% in 2021, its highest level since 1982.1 While there are eight major components of the CPI, just three components compose ~72% of the total: housing, which consists of homeowners and renters (42%); transportation (15%); and food and beverages (15%).

Let's focus on the housing component due to its significant weighting, and see what pricing relief, if any, might be on the horizon. In 2021, housing inflation rose at an annual rate of 4.1%. However, as shown in the graphic below, this rate may continue to increase in 2022 before declining, helping to anchor overall inflation at a somewhat higher than normal level in the very near-term.

Fed medium sale price

There are two sources for a potential price increase in this component, beginning with the median sales price of homes, which rose by 19% in 2021.2 The drivers of this rise have been unusually strong housing demand fed by an increase in work-from-home arrangements, a continuing lack of available housing stock, unusually low mortgage rates (thanks to the Fed), and labor and building material shortages in the homebuilding industry. Some of these drivers may lessen—but not vanish—in 2022. However, a second source may arise from renters, who may experience price increases, too, in 2022, as rents may be reset to reflect rising home prices. Hopefully, housing cost increases will begin to decelerate in 2022, just as the price of used cars has already begun to fall.

Let's turn now to another factor affecting recent market volatility. This is, of course, the continuing pandemic stress found within so many supply chains. Too few retail and service employees, too few truck drivers, too few shipping containers, and key ports working at reduced capacity due to recurring COVID outbreaks—each of these factors and others have contributed to logistical challenges for companies and households. As shown in the graphic below, one result has been that shipping expenses within the U.S. rose at an annualized rate of 36% in 2021. For container shipping companies, one outcome of this recent stress has been windfall profits.

cass inferred freight rates

There is a growing belief, however, that supply chain stress will be reduced in 2022 due to increased onshoring of U.S. manufacturing capacity, a shift by consumers from purchasing products to consuming services, and, hopefully, a less threatening workplace environment due to potentially reduced COVID exposure. As this occurs, the markets may respond positively to the prospects for less uncertainty in the logistics sector.

Despite this recent volatility, the historical response to infrequent market setbacks should offer some key information to long-term investors. As shown in the table below, there have been eight equity bear markets, i.e., a decline of 20% or more, since 1968. During this 53-year period, the average bear market lasted for 14 months and saw an overall decline of 36.9% in the S&P 500. In the aftermath, eight bull markets, i.e., a rise of 20% or more, then occurred, each lasting an average of 65.5 months and achieving an average total return of 184.4%. Of course, past performance is not predictive of future performance.

Market volatility is stressful for everyone, but TMG employs a suite of risk management tools to help add value to our clients' financial profiles during such volatility. These include such initiatives as tax-loss harvesting to reduce your overall tax burden, asset class rebalancing to maintain necessary portfolio diversification, and accelerated tax strategies to increase future after-tax income.

Although market volatility may be reduced in the coming months, it is important to note the critical role of your financial plan in helping you to maintain progress toward achieving your financial goals. Your trusted TMG advisor is ready to respond to any questions or concerns you might have, and to help ensure that your financial plan remains both timely and actionable. Please reach out to your advisor for guidance at any time.


1 U.S. Bureau of Labor Statistics
2 U.S. Census Bureau, U.S. Department of Housing and Urban Development, U.S. Bureau of Labor Statistics

Additional Sources: Act Research Company; Bloomberg; Cass Information Systems; FactSet Research Systems; Federal Reserve Bank of St. Louis (FRED); Federal Reserve Board; Goldman Sachs; LPL Research; New York Times; Reuters; S&P Dow Jones Indices; U.S. Bureau of Labor Statistics; U.S. Census Bureau; U.S. Department of Housing and Urban Development; The Wall Street Journal

The Mather Group, LLC (TMG) is registered under the Investment Advisers Act of 1940 as a Registered Investment Adviser with the Securities and Exchange Commission (SEC). Registration as an investment adviser does not imply a certain level of skill or training. For a detailed discussion of TMG and its investment advisory services and fees, see the firm's Form ADV on file with the SEC at The opinions expressed, and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security. The opinions and advice expressed in this communication are based on TMG's research and professional experience and are expressed as of the publishing date of this communication. All return figures and charts shown are for illustrative purposes only. TMG makes no warranty or representation, express or implied, nor does TMG accept any liability, with respect to the information and data set forth herein. TMG specifically disclaims any duty to update any of the information and data contained in this communication. The information and data in this communication does not constitute legal, tax, accounting, investment, or other professional advice. Investing in securities involves risks, and there is always the potential of losing money when you invest in securities. Before investing, consider your investment objectives. Past performance does not guarantee future results.

Index performance results do not represent any managed portfolio returns. An investor cannot invest directly in a presented index, as an investment vehicle replicating an index would be required. An index does not charge management fees or brokerage expenses, and no such fees or expenses were deducted from the performance shown. Please feel free to contact us for additional information on any indices mentioned in this commentary. 


  • Standard & Poor's (S&P) 500: A stock market index that measures the stock performance of 500 large companies listed on stock exchanges in the United States.
  • Consumer Price Index (CPI): A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care. It is calculated by taking price changes for each item in the predetermined basket of goods and averaging them. Changes in the CPI are used to assess price changes associated with the cost of living. 


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