Fortified Wealth Strategies, Inc.

The Hidden Cost of a Guaranteed Zero

Fortified Wealth Strategies — Thu, 08 Oct 2026 19:53:52 +0000

SIGNAL, NOISE, AND WHAT MATTERS

This Month's Briefing

A monthly Fortified Wealth briefing that separates the financial headline from the planning issue. Each piece looks at what is actually happening, what may be overstated or misunderstood, and what matters for families, business owners, and professional advisors making real financial decisions.

(Download 10-7-26)

Signal, Noise, And What Matters | October 2026

What People Are Hearing

You’ve probably heard the commercials. They’re on television, radio, podcasts, and all over the internet – Participate in the stock market without the risk. Protect your retirement savings from market declines. Enjoy guaranteed growth and financial security.

It sounds almost too good to be true. And that should be the first warning.

Insurance companies have become extraordinarily effective at selling the idea that investors can enjoy stock-market gains without experiencing stock-market losses. But there’s a reason these products are so profitable to manufacture and sell.

The insurance company isn’t giving you the stock market without the downside. It’s selling you a contract that can severely restrict how much of the upside you receive. And over a decade or two, that difference can be enormous.

Signal: The Promise Is Everywhere

The signal is the extraordinary marketing effort behind fixed indexed annuities. The advertisements emphasize guarantees, protection, retirement income, and peace of mind. They appeal directly to one of retirees’ greatest fears: Watching their savings decline just when they need them most.

It’s effective marketing because it focuses on the emotional pain of losing money. But the advertisements rarely devote equal attention to the financial consequences of missing years of investment growth. And that’s where the story gets interesting.

Noise: If You Can Get the Upside Without the Downside, Why Wouldn’t You?

That’s the sales pitch in a nutshell. Why expose your retirement savings to market declines when an insurance company can protect your principal and still let you participate in market gains?

Because participating in the market is not the same thing as earning the market’s return. An indexed annuity may advertise a 6% cap, for example. That does not mean the investor is guaranteed to earn 6%. It means 6% may be the maximum interest credited during the applicable period.

If the index rises 15%, the investor might receive 6%. If it rises 5%, the investor might receive 5%—or less, depending on the crediting formula. If it declines, the investor might receive 0%.

And unlike a conventional stock investment, many indexed annuity strategies don’t credit the dividends associated with the underlying index.

The marketing makes the zero sound wonderful. But it doesn’t spend much time explaining the missing upside.

What Matters: How the Guarantee Is Actually Delivered

Insurance companies generally don’t provide stock-market protection by generously absorbing all the market’s losses while handing investors the gains. They structure contracts to limit what they must credit.

Two important mechanisms are Caps and Participation Rates. A cap limits the maximum return the contract can credit during a specified period. A participation rate determines what percentage of an index gain is used in the crediting calculation. Depending on the contract, one or both may apply.

Consider a hypothetical indexed annuity with a 60% Participation Rate and a 6% Cap Rate.

S&P 500 Annual Gain	After 60% Participation	Net to You With 6% cap	What You Missed
5%	3%	3%	2%
7.5%	4.5%	4.5%	3%
10%	6%	6%	4%
15%	9%	6%	9%
20%	12%	6%	14%

Note: Illustrative contract applying both restrictions; actual products differ. Figures exclude index dividends and additional charges.

So taken step further, if the market does exceptionally well and rises of 30%, the investor only nets 6%. Twenty-four percentage points of market appreciation never reach the contract.

Additionally, many contracts also allow insurers to reset caps and participation rates at renewal each year, subject to contractual minimums. An attractive rate advertised at purchase may not be available in later years.

Meanwhile, the investor may be stuck due to surrender charges for leaving.

The insurance company can have flexibility to change the economics while the investor has limited flexibility to walk away.

The Real Cost Isn’t the Market Decline. It’s the Recovery You Miss.

The salesperson asks: What happens if the market falls 20%? That’s a reasonable question. But here’s another: What happens when the market recovers 25%, 30%, or 40%, and your contract credits only a fraction of that gain?

Stock markets have historically experienced substantial declines followed by significant recoveries. An indexed annuity’s zero floor can protect against a negative index-crediting year under specified terms. But caps and participation rates can limit how much the investor benefits from subsequent positive years.

Over long periods, those forgone gains can compound into a meaningful difference in wealth. Consider $500,000 invested for 10 years:

Annualized return	Value after 10 years
1%	$552,311
2%	$609,497
5%	$814,447
7%	$983,576

Note: Hypothetical constant annual returns, not historical results or a forecast. Excludes taxes, withdrawals, and fees.

At 2% annually, $500,000 grows to approximately $609,500. At 7%, it grows to nearly $984,000—a difference of roughly $374,000.

A conventional investment portfolio can lose value, and these figures do not compare identical risks. But avoiding losses is not the same as building wealth.

Who Benefits From the Complexity?

Some indexed annuities pay substantial upfront commissions to the agents selling them. Those commissions are generally built into product economics rather than appearing as a separate check written by the investor.

Compensation varies by product, insurer, surrender period, and distribution arrangement. It would be inappropriate to assume every agent receives the same percentage.

But the incentive deserves scrutiny. A large upfront commission can reward the sale immediately, while the investor experiences the contract’s actual credited returns over the following decade.

Is this product being recommended because it is the best solution for my retirement, or because it is exceptionally profitable to sell? If someone recommends replacing an existing annuity with another, the question becomes even more important.

Questions Worth Asking

What have the contract’s actual credited returns been, rather than its hypothetical illustrated returns?
What are the current Cap and Participation Rates, and their contractual minimums?
How frequently can the insurer change those rates?
How is the selling agent or agency compensated?
How much can I withdraw without surrender charges?
How much of the market’s potential long-term return am I giving up to obtain the zero-percent floor?

Closing Thought

A guarantee is only as valuable as the problem it solves. For some investors, protecting a specific amount of principal or securing lifetime income can be worth paying for. But that doesn’t make an indexed annuity an attractive substitute for long-term stock-market investing.

The financial services industry spends enormous sums advertising what these products prevent investors from losing. Investors should spend at least as much time understanding what those products prevent them from earning.

The most expensive part of an indexed annuity may not be a fee you can see. It may be the investment growth you never receive.

Sources

LIMRA, U.S. Annuity Sales, Second Quarter 2026 — https://www.limra.com/en/newsroom/news-releases/2026/

FINRA, Annuities — https://www.finra.org/investors/investing/investment-products/annuities

SEC Investor.gov, Annuities — https://www.investor.gov/introduction-investing/investing-basics/investment-products/annuities

SEC, Variable Annuities — https://www.sec.gov/investor/pubs/varannty.htm

Disclosure

For educational purposes only; not individualized investment, insurance, tax, or legal advice. Fixed indexed annuity terms vary by insurer and contract. Crediting strategies may apply caps, participation rates, spreads, or combinations; terms can change subject to contractual guarantees. A 0% index-crediting floor does not necessarily protect against surrender charges, withdrawals, or other contract adjustments. Guarantees depend on the insurer’s claims-paying ability. Index-linked credits generally exclude dividends and differ from direct investment in the index. A diversified portfolio can lose value. Consult qualified professionals before purchasing, replacing, or surrendering an annuity. Fortified Wealth Strategies, Inc. is a Registered Investment Advisor.

When the Winners Stop Winning

Fortified Wealth Strategies — Tue, 01 Sep 2026 16:23:58 +0000

SIGNAL, NOISE, AND WHAT MATTERS

This Month's Briefing

(DOWNLOAD PDF – 9/1/26)

What People Are Hearing

The S&P 500 has remained near record levels, and that can make the market look unusually calm. But beneath the headline index, something important has been happening. Some of the stocks and strategies that had been among the market’s strongest performers have experienced a sharp reversal, while other parts of the market have taken the lead.

One of the clearest examples is momentum investing—the tendency to favor stocks that have already been performing well. The S&P 500 Momentum Index gained 44% in the second quarter of 2026, its best quarter on record, after years of strong performance. Since July 1, however, that index has fallen more than 9% even as the S&P 500 gained roughly 3%. July was the second-worst month for momentum in about four decades, according to Bank of America estimates reported by The Wall Street Journal.

The natural reaction is to ask whether this is a warning that the broader market is about to fall. It might be more useful to ask a different question: What if part of the correction has already been happening, just not in the index most people watch?

Signal

Markets do not always correct by having everything fall at the same time. Sometimes the correction happens through a change in leadership.

That appears to be part of what we have seen this summer. Crowded technology trades hurt hedge funds in July, while S&P Dow Jones Indices found that more than 60% of S&P 500 stocks actually outperformed the index in June and July. Health care, financials, industrials, real estate and other areas participated more meaningfully even as some previous leaders struggled.

This matters because a market dominated by a small group of winners can become healthier without the S&P 500 itself suffering a major decline. Capital can rotate. Valuations can adjust. Crowded positions can unwind. New companies and sectors can begin contributing to returns.

In other words, a change in leadership is not necessarily the same thing as the end of a bull market. It can also be one of the ways a market works through excess.

Noise

The difficult part is that market rotations generate compelling stories in both directions.

When technology and AI-related stocks weaken, it is easy to conclude that the investment theme has broken and a larger decline must follow. When the S&P 500 continues rising, it is equally easy to conclude that nothing important has changed.

Neither conclusion tells us very much by itself.

A headline index is an average, and averages can conceal large differences underneath. On some recent trading days, the S&P 500 rose even though a majority of its constituent stocks declined. At other points this summer, the opposite occurred: mega-cap technology struggled while a much broader group of stocks advanced.

Trying to turn each rotation into a forecast about what happens next is usually where useful information becomes noise.

What Matters

The more durable lesson is about diversification.

Diversification is sometimes described as owning investments that will protect a portfolio when the stock market falls. That is only part of its purpose.

Another purpose is much simpler: A diversified plan should not require the same investments to remain the market’s winners indefinitely.

Leadership changes. The best-performing companies, sectors, styles and asset classes of one period are rarely the permanent winners. A portfolio concentrated in what has worked recently can quietly become dependent on one particular market regime continuing.

A diversified investor does not need to know whether technology, health care, financials, small companies, international stocks or some other part of the market will lead next. The portfolio is built around the recognition that we cannot reliably know that in advance.

That does not mean every investment must perform well at the same time. In fact, if everything in a portfolio is always moving together, it is worth asking how much diversification is actually there.

For investors, the recent momentum reversal is therefore less interesting as a prediction and more useful as a reminder: a market can change substantially beneath the surface, and a sound financial plan should be able to tolerate a change in who is winning.

Questions Worth Asking

Has recent performance caused one part of my portfolio to become much larger than intended?
Do several of my funds or strategies ultimately depend on the same companies or market theme?
Am I judging diversification by the number of holdings I own, or by what actually drives their returns?
If today’s market leaders stopped leading for several years, would my financial plan still work?
Am I considering a portfolio change because my circumstances changed, or because market leadership changed?

Closing Thought

One of the easiest mistakes in investing is to confuse what has been working with what must continue working.

The market does not need to crash for leadership to change. Sometimes yesterday’s winners simply stop carrying the load and other parts of the market begin doing more of the work.

For a diversified investor, that is not necessarily a problem to solve. It is one of the reasons diversification exists in the first place.

Sources

Disclosure

This material is for informational and educational purposes only and is not intended as investment, tax, legal or accounting advice. The information presented is based on sources believed to be reliable, but its accuracy and completeness cannot be guaranteed. Past performance does not guarantee future results. Diversification does not assure a profit or protect against loss. Investment decisions should be made in the context of an investor’s individual objectives, circumstances, time horizon and risk tolerance.

The Charitable Deduction Now Has A Deductible

Fortified Wealth Strategies — Tue, 04 Aug 2026 20:07:27 +0000

SIGNAL, NOISE, AND WHAT MATTERS

This Month's Briefing

(Download 8-4-26)

What People Are Hearing

Charitable giving has a new tax rule in 2026, and the headline version sounds simple: the charitable deduction now has a floor. For taxpayers who itemize, only aggregate charitable contributions above 0.5% of adjusted gross income may be claimed as an itemized charitable deduction.

That means a household with $400,000 of adjusted gross income generally receives no itemized charitable deduction for the first $2,000 contributed during the year. At $1 million of adjusted gross income, the first $5,000 falls below the floor. A $25,000 gift in that second example may produce a potential itemized deduction of $20,000 – not the full $25,000 – before applying the other charitable contribution limits and tax rules.

The same law also created a separate deduction for some taxpayers who do not itemize. Beginning in 2026, nonitemizers may deduct up to $1,000, or $2,000 for married couples filing jointly, for qualifying cash contributions to certain eligible organizations.

Those two changes point in opposite directions. More taxpayers may receive some tax benefit for giving, while itemizers who make larger gifts lose a portion of the deduction they previously expected. The result is not a reason to give more or less automatically. It is a reason to understand which rule applies before year-end.

Signal

The signal is that the 0.5% floor is a real annual cost for itemizers, especially families who make steady gifts that are meaningful but modest relative to their income. The floor resets each year. It is not a one-time hurdle, and crossing it does not restore a deduction for the amount below the floor.

That distinction matters. A taxpayer with $500,000 of adjusted gross income has a $2,500 floor. If the taxpayer contributes $10,000 during the year, the potential itemized charitable deduction begins at $7,500. The first $2,500 is not recovered merely because the total gift exceeded the floor.

The rule also makes the source of a gift more important. A qualified charitable distribution from an IRA is generally excluded from income when it is paid directly to an eligible charity under the QCD rules. It is not claimed as an itemized charitable deduction, so the new itemized-deduction floor does not directly reduce the excluded amount. A gift of appreciated securities may also avoid recognizing embedded capital gain while producing a charitable deduction, although that deduction is still subject to the new floor and the other percentage, property, substantiation, and recipient rules.

A donor-advised fund can help some families separate the year of the tax deduction from the years in which charities receive grants. The deduction generally occurs when the donor contributes to the sponsoring organization, not when the fund later recommends grants. That can make grouped or ‘bunched’ giving more practical, but it also means the contribution is irrevocable and the sponsoring organization has legal control of the assets.

The practical signal is not that one strategy has suddenly become best. It is that charitable intent, taxable income, the type of asset being donated, and the timing of the deduction now need to be considered together.

Noise

The first noisy conclusion is that charitable gifts below the floor no longer matter. They matter exactly as much to the organization receiving them. The tax code changes the donor’s deduction, not the value of the gift to a church, foundation, school, food bank, or other charity.

The second noisy conclusion is that everyone should bunch several years of giving into one year. Bunching may help a taxpayer exceed the new floor and the standard deduction in a selected year, but it can also create cash-flow problems, reduce flexibility, complicate support for charities that depend on regular contributions, or provide little benefit if the taxpayer would not itemize anyway.

The third noisy conclusion is that qualified charitable distributions solve the problem for every retiree. QCDs are available only under specific IRA, age, transfer, and recipient rules. They may be useful because they can satisfy charitable intent without increasing adjusted gross income, but they are not interchangeable with donor-advised funds, appreciated-security gifts, private-foundation grants, or ordinary checks.

The fourth noisy conclusion is that the tax deduction should determine the size of the gift. A deduction reduces taxable income; it does not reimburse the donor dollar for dollar. Giving an additional dollar solely to save a fraction of that dollar in tax does not create wealth. The strategy should improve the delivery of a gift the family already wants to make, not manufacture a reason to spend more.

What Matters

Start with purpose. How much does the family want to give, to whom, and on what schedule? A tax strategy should support that intent rather than replace it. Families that want a church or nonprofit to receive stable annual support can continue that support even if they group the tax deduction into selected years through a donor-advised fund or a larger direct contribution.

Next, estimate adjusted gross income and itemized deductions before the year is nearly over. The floor is based on adjusted gross income, so a business sale, Roth conversion, large capital gain, bonus, option exercise, or unusually strong business year can raise the dollar amount that is nondeductible. The same event may also create a higher marginal tax rate or a concentration of appreciated assets that makes charitable planning more valuable. Those effects should be modeled together rather than judged from the floor alone.

Then choose the asset deliberately. Cash is simple, but it may be the most expensive asset to give when the family owns publicly traded securities with substantial unrealized gains. Appreciated assets can create two potential tax benefits – avoiding capital gain and receiving a charitable deduction – but only when the holding period, recipient, valuation, and documentation rules are satisfied. For eligible IRA owners, a QCD may be more useful than taking a taxable distribution and then writing a check.

Timing also deserves attention. A family that normally gives $20,000 every year may choose to keep the charitable support steady while funding several years of grants into a donor-advised fund during a high-income year. Another family may prefer direct annual gifts because simplicity, control, or the charity’s immediate need matters more than maximizing a deduction. The tax result is one part of the decision, not the whole decision.

Finally, coordinate the charitable plan with the estate plan. Retirement accounts, taxable investments, business interests, life insurance, and testamentary gifts do not all produce the same result for heirs or charities. A family may be giving from cash during life while leaving highly tax-inefficient assets to children and tax-efficient assets to charity. Annual giving, beneficiary designations, and legacy planning should tell the same story.

The 2026 rule does not require a more complicated charitable life. It requires an intentional one. The family, financial advisor, CPA, and attorney should know what the gifts are meant to accomplish and which tool is being used before the transaction becomes irreversible.

Questions Worth Asking

What do we expect our 2026 adjusted gross income to be, and what is 0.5% of that amount?
Will we itemize deductions this year, or will the new nonitemizer cash deduction apply instead?
How much of our planned giving would fall below the new floor?
Are we giving cash while holding appreciated securities that could be donated more efficiently?
Are we eligible to use qualified charitable distributions from an IRA, and are the intended recipients eligible?
Would grouping several years of deductions into one year improve the result without disrupting the charities we support?
Would a donor-advised fund help us maintain regular grants, or would it add cost and complexity without enough benefit?
Do we have an unusually high-income year, business transaction, capital gain, or Roth conversion that should be coordinated with giving?
Are our receipts, acknowledgments, appraisals, and transfer records sufficient for the type and size of each contribution?
Do our annual gifts, beneficiary designations, and estate documents carry out the same charitable priorities?

Closing Thought

The new rule does not change what a charitable gift means to the organization receiving it. It changes how much of that gift may be recognized on Schedule A.

That makes autopilot less reliable. Writing the same checks at the same time from the same account may still be the right decision, but it should now be a conscious decision. For some families, the better answer will be a qualified charitable distribution. For others, it may be appreciated securities, a donor-advised fund, a larger direct gift in a selected year, or simply continuing the current approach because the charitable purpose matters more than the deduction.

The goal is not to let the tax code dictate generosity. The goal is to make sure the family’s generosity, tax plan, investment plan, and estate plan are working together.

Sources

Internal Revenue Service, Publication 505 (2026), Tax Withholding and Estimated Tax. https://www.irs.gov/publications/p505
Internal Revenue Service, Topic No. 506, Charitable Contributions, updated July 2026. https://www.irs.gov/taxtopics/tc506
gov, H.R. 1, Sections 70424 and 70425, nonitemizer deduction and 0.5% itemized charitable floor. https://www.congress.gov/bill/119th-congress/house-bill/1
Internal Revenue Service, Publication 590-B, Distributions from Individual Retirement Arrangements, qualified charitable distribution rules. https://www.irs.gov/publications/p590b
Internal Revenue Service, Publication 526, Charitable Contributions. https://www.irs.gov/publications/p526
Internal Revenue Service, Donor-Advised Funds. https://www.irs.gov/charities-non-profits/charitable-organizations/donor-advised-funds
Bipartisan Policy Center, How the New Charitable Deduction Floors Work, November 17, 2025. https://bipartisanpolicy.org/issue-brief/how-the-new-charitable-deduction-floors-work/

Disclosure

This material is provided for informational and educational purposes only. It is not intended as investment, tax, legal, or accounting advice, and it should not be relied upon as a substitute for individualized professional guidance. Charitable contribution deductions depend on adjusted gross income, itemization status, the type of property contributed, the receiving organization, holding periods, substantiation, appraisal requirements, contribution limits, carryforwards, and other tax rules. Qualified charitable distributions are subject to separate age, account, transfer, annual-limit, and recipient requirements, and an excluded QCD cannot also be claimed as a charitable contribution deduction. Donor-advised-fund contributions are irrevocable, and the sponsoring organization has legal control of contributed assets. Tax laws and administrative guidance may change. Clients should consult their financial advisor, CPA, and attorney regarding their individual circumstances before implementing a charitable strategy.

The Rally Is Back, But It Is Getting Narrow Again

Fortified Wealth Strategies — Tue, 07 Jul 2026 17:40:55 +0000

SIGNAL, NOISE, AND WHAT MATTERS

This Month's Briefing

(DOWNLOAD PDF – 7/7/26)

What People Are Hearing

The market rally is back in the headlines, and artificial intelligence remains one of the biggest reasons. Recent market coverage has shown the same pattern several times: AI and semiconductor stocks rally, investors regain confidence, and the major indexes move higher.

That is not just hype. Companies are still spending heavily on chips, cloud infrastructure, data centers, power, software, and memory. Goldman Sachs Research has estimated that AI investment could drive roughly 40% of S&P 500 earnings growth this year, with the largest cloud computing companies expected to spend hundreds of billions of dollars in 2026.

But there is another side to the story. A broad market index can look healthy even when much of the performance is coming from a relatively small group of companies. That does not mean the rally is fake, but it does mean investors should understand how much of their portfolio may now depend on one theme continuing to work.

Signal

The signal is that Artificial Intelligence has become a real economic force, not just a stock market slogan. The buildout requires capital, infrastructure, energy, chips, memory, software, and enormous balance sheets, which is why investors keep returning to many of the same large companies.

The S&P 500 is often described as a broad measure of large U.S. companies. S&P Dow Jones Indices says the index includes 500 leading companies and covers roughly 80% of available U.S. market capitalization. But the index is capitalization-weighted, so the largest companies have the greatest impact on performance.

That distinction matters now. J.P. Morgan Asset Management recently noted that the top ten stocks represented 40.8% of the S&P 500, well above the 26.6% level reached at the peak of the technology bubble. Those companies also contribute a meaningful share of index earnings, so this is not simply a case of prices rising without business results.

Noise

The noise is the constant attempt to turn every short-term move in AI or chip stocks into a major conclusion. One day, investors are told the AI rally is intact. The next day, semiconductor stocks fall, and the question becomes whether the whole theme is cracking.

That kind of reversal is normal in a concentrated market. When a narrow group of stocks drives performance, every earnings report, capital spending announcement, product update, regulatory headline, or geopolitical development can feel larger than it really is.

It also creates a behavioral problem for investors. If you do not own enough of the leading names, it can feel like you are falling behind. If you own too much of them, it may not feel risky while they are still working.

What Matters

What matters is understanding the difference between owning a broad index and owning a balanced portfolio. The S&P 500 may contain hundreds of companies, but that does not mean every company has the same effect on your return or your risk.

When the largest companies rise, index returns can look strong even if many stocks underneath the surface are not participating. When those same companies fall, a portfolio that looked broadly diversified may behave more like a concentrated technology or AI portfolio than the investor expected.

The practical takeaway is not that investors should abandon large U.S. companies, technology, or AI. The practical takeaway is that allocation still matters. Diversification is not about avoiding the winners; it is about making sure a financial plan does not depend too heavily on one group of winners staying in favor forever.

Questions Worth Asking

How much of my equity exposure now depends on the largest few companies?
If the AI trade pulled back sharply, would that change my financial plan, or would it only change my account statement?
Am I intentionally concentrated, or has concentration built up without much thought?
Am I comparing a diversified portfolio to a narrow group of recent winners and treating that comparison as a failure of the plan?
Does my portfolio still match my spending needs, tax situation, business plans, estate goals, and tolerance for volatility? Those questions matter more than whether one specific theme leads the market for another month or another quarter.

Closing Thought

Diversification often feels least useful right before it matters most.

When one part of the market is leading, everything else can feel like dead weight. But that is usually when discipline is most important. A strong plan does not require predicting exactly when leadership will change, or whether AI stocks have further to run. It requires knowing what you own, why you own it, and how much of your future depends on one theme continuing to work.

AI may continue to be one of the most important investment stories of this decade. But even a real story can become crowded, and even great companies can become too large a share of an investor’s risk.

The goal is not to avoid growth. The goal is to avoid confusing recent performance with permanent safety.

Sources

Disclosure

This material is for informational purposes only and should not be considered individualized investment, tax, or legal advice. Investment strategies involve risk, and past performance does not guarantee future results. Inflation, interest rates, and market conditions may change. Clients should consult their financial, tax, and legal advisors before making decisions based on their individual circumstances.

The Rate-Cut Waiting Room

Fortified Wealth Strategies — Tue, 02 Jun 2026 16:25:30 +0000

SIGNAL, NOISE, AND WHAT MATTERS

This Month's Briefing

(DOWNLOAD PDF – 6/2/26)

What People Are Hearing

When will interest rates finally come down? That question matters, but it is not the best starting point for planning.

A better question is: What if rates remain meaningful for longer than expected?

The Federal Reserve kept the federal funds target range at 3.50% to 3.75% at its April 29 meeting. The same statement noted that inflation remains elevated, partly reflecting higher global energy prices, and that Middle East developments are contributing to a high level of uncertainty around the outlook. In late May, the Fed’s daily H.15 release showed the effective federal funds rate at 3.62%, the bank prime loan rate at 6.75%, and the 10-year Treasury yield at 4.45% as of May 29. Cash yields, loan rates, bond yields, and inflation all remain active planning variables.

Signal

The signal is that interest rates are still doing real planning work.

This is not a zero-rate environment where cash earns nothing and debt can be treated casually. Short-term cash still pays a meaningful yield. Floating-rate debt still matters. Bond duration still matters. The tax character of interest income still matters. For retirees and business owners, the gap between waiting for rates to fall and planning around today’s rates can be meaningful.

The Fed’s April meeting minutes showed a complicated backdrop: Treasury yields had moved higher, near-term inflation compensation had risen, and market expectations pointed to little change in the federal funds rate over the remainder of the year. The Bureau of Economic Analysis later reported that the PCE price index rose 3.8% from a year earlier in April, while core PCE rose 3.3%. That is still above the Fed’s 2% longer-run objective.

The practical signal is not that rates must rise or fall from here. It is that planning decisions should not depend on a single expected Fed cut.

Noise

The noise is the day-to-day debate over the next Fed meeting.

A cut, pause, or hike can move markets in the short run. It can also affect cash yields, bond prices, and borrowing costs. But a quarter-point move rarely changes the foundation of a well-built financial plan by itself.

The noise can show up in several ways. Retirees may chase the highest CD or money-market yield without thinking about reinvestment risk, taxes, or the need for longer-term income. Business owners may delay financing decisions indefinitely because they assume capital will be cheaper soon. Investors may hold too much cash because it feels productive, while forgetting that cash can become less productive quickly if rates decline. Borrowers may focus only on the Fed funds rate even though mortgages, business loans, and long-term bonds also respond to inflation expectations, credit conditions, and Treasury supply.

None of these reactions are irrational. They are understandable. The problem is that they turn a forecast into a plan.

What Matters

What matters is matching each dollar to a job.

For households, cash should be tied to emergency reserves, tax payments, planned spending, and near-term needs. Beyond that, excess cash should be reviewed against inflation, taxes, reinvestment risk, and long-term return needs.

For retirees, the income plan should answer a few practical questions. How much spending is supported by cash and short-term instruments? How much is supported by bonds or other income-producing assets? How much of the portfolio still needs to be positioned for long-term growth? A high current yield can be useful, but it is not the same thing as a retirement income strategy.

For business owners, this is a good time to review debt structure. Floating-rate loans, operating lines, equipment financing, renewal dates, acquisition capital, and real estate debt should be stress-tested across several rate scenarios. The right question is not only whether rates may fall. It is whether the business can absorb rates that stay higher, move lower slowly, or rise again if inflation remains persistent.

For investors, the fixed-income side of the portfolio deserves more attention than it did when rates were near zero. Duration, credit quality, liquidity, tax sensitivity, and the role of cash should be reviewed together. The goal is not to guess the exact peak or trough in rates. The goal is to make sure the portfolio’s interest-rate exposure supports the broader plan.

The practical takeaway is simple: waiting for rates to normalize is not a strategy. This environment rewards clients who know what their cash is for, what their debt costs, what their income plan requires, and where their portfolio is exposed to rate changes.

Questions Worth Asking

How much cash do we need for known spending, taxes, emergencies, and planned opportunities over the next 12 to 24 months?
If money-market or CD yields fall from here, what replaces that income, and does the portfolio still support the plan?
Which debts reprice or mature over the next one to three years, and what happens to cash flow if rates do not fall as quickly as expected?
For retirees, are we using cash for stability, bonds for income and ballast, and equities for long-term growth, or has the current yield on cash blurred those roles?
For business owners, does the current borrowing plan still work under several rate paths, including a slower decline in rates or a renewed inflation shock?

Closing Thought

Rate forecasts are useful background, but they are not planning instructions. The objective is not to win the Fed guessing game. The objective is to make sure cash, debt, income, and portfolio exposure are aligned with the client’s actual time horizon and risk tolerance.

In a rate environment that still matters, discipline means knowing which dollars are for safety, which dollars are for income, which dollars are for opportunity, and which dollars are for long-term growth.

Sources

Disclosure

When Inflation Shows Up In Cash Flow Before Portfolios

Fortified Wealth Strategies — Tue, 19 May 2026 16:11:29 +0000

SIGNAL, NOISE, AND WHAT MATTERS

This Month’s Briefing

(DOWNLOAD PDF – 5/19/26)

What People Are Hearing

Inflation has moved back into the financial headlines. The April Consumer Price Index rose 0.6% for the month and 3.8% over the prior 12 months. Core CPI, which excludes food and energy, rose 0.4% for the month and 2.8% over the prior year.

The Federal Reserve also left the federal funds target range unchanged at 3.50% to 3.75% at its April meeting, while continuing to state that it is focused on maximum employment and returning inflation to its 2% objective.

For many households and businesses, that combination means interest rates and inflation remain active planning variables.

Signal

The signal is not simply that inflation rose in one month. Monthly inflation data can be noisy.

The signal is that inflation and interest rates continue to matter outside the investment portfolio. Cash may earn more than it did several years ago, but household expenses may also be higher. Borrowers may still face elevated rates. Business owners may have to manage payroll, inventory, supplier costs, financing, and customer pricing at the same time. Retirees may need to think about how inflation affects withdrawal needs, portfolio income, and purchasing power.

The March Personal Consumption Expenditures Price Index, another inflation measure watched closely by the Federal Reserve, was up 3.5% from a year earlier. Excluding food and energy, it was up 3.2% from one year ago.

For small businesses, the picture remains mixed. The NFIB Small Business Optimism Index rose slightly in April to 95.9, but remained below its 52-year average of 98.0. Its uncertainty index also remained elevated, even after falling from the prior month.

That matters because businesses do not manage “the economy.” They manage pricing, labor, financing, inventory, taxes, and timing.

Noise

The noise is the temptation to turn every inflation report into a market prediction.

One inflation report does not automatically mean a recession, a market correction, a rate hike, or a reason to change a long-term investment plan. It also does not affect every household or business the same way.

A retired couple with low debt, strong cash reserves, and a disciplined income plan experiences this environment differently than a business owner with floating-rate debt and rising input costs.

A younger family looking to buy a home experiences it differently than a family with a fixed-rate mortgage.

A business with pricing power experiences it differently than a business whose margins are already tight.

The other noise is focusing only on investment returns. A portfolio statement may not show the first signs of stress. The first signs may appear in monthly spending, debt service, insurance renewals, payroll pressure, or deferred large purchases.

What Matters

The better question is not: What will the Fed do next?

The better question is: Where does your financial plan depend on inflation cooling or rates falling soon?

That question can be useful for households, retirees, and business owners.

For households, it may mean reviewing cash reserves, debt structure, and upcoming major purchases. Cash earning more interest can be helpful, but too much idle cash can still lose purchasing power over time. Debt that once seemed manageable may deserve another look if it adjusts or needs to be refinanced.

For retirees, it may mean looking at whether spending assumptions still reflect actual costs. Inflation does not hit every household the same way. Health care, insurance, housing, travel, taxes, and family support can matter more than the broad inflation number.

For business owners, the planning question may be more direct: If borrowing costs, payroll, insurance, and supplier costs stay elevated, does the business still produce the cash flow the owner expects?

That question can affect owner compensation, retirement plan contributions, tax estimates, hiring decisions, capital expenditures, and business valuation assumptions.

Questions Worth Asking

Do we have any debt that resets, floats, balloons, or needs refinancing in the next 12 to 36 months?
Are our cash reserves intentional, or have they accumulated without a plan?
Are we holding cash for safety, opportunity, taxes, spending, or indecision?
If rates stay elevated longer than expected, what changes in our plan?
For business owners: Are current margins strong enough to absorb higher financing, payroll, and input costs?
For retirees: Does the income plan still work if certain personal expenses rise faster than broad inflation?

None of these questions requires a market forecast. They require a planning review.

Closing Thought

Inflation and interest rates are often discussed as economic statistics. But in real life, they are planning variables.

The right response is rarely dramatic. It is usually practical: Review the balance sheet, understand debt exposure, coordinate cash and portfolio income, and make sure major decisions are not quietly relying on a rate environment that may not arrive on schedule.

That is where planning matters.

Sources

Disclosure

Market Growth Meets Rising Risks: The Impact of Policy & Sentiment

Joe Michalski — Wed, 26 Feb 2025 21:29:33 +0000

At first glance, 2025 appears to be another strong year for markets. The MSCI ACWI Index gained 3.36% in January, and the S&P 500 is up 4.2% year-to-date, fueled by strong corporate earnings and economic resilience.

Yet, the latest weekly market data suggests growing instability beneath the surface.

Major U.S. indexes moved lower in mid-February, weighed down by concerns about weak consumer spending, higher interest rates, and regulatory uncertainty.
Stock market dispersion is rising—meaning individual stocks are moving in opposite directions, masking overall volatility.³
Investor sentiment is at its lowest since 2023, with many worried about tariffs, inflation, and stretched valuations.⁴
Signs of market froth are growing, with speculation in meme stocks and options trading hitting new highs.⁵

So, is this a market poised for more gains, or one at risk of a correction?

At FWS, the focus remains on long-term discipline and data-driven insights. Here’s what’s happening in the markets today.

Stock Markets Are Up, But Risks Are Building

The Hidden Volatility Beneath Index Stability

One of the most unusual aspects of this year’s rally is that while major indexes remain steady, individual stocks are experiencing significant swings.

The Cboe S&P 500 Dispersion Index, which tracks how differently stocks move from each other, hit its highest level since May 2022.³
This means some stocks are surging, while others are plummeting, balancing out at the index level.

Take the “Magnificent Seven” tech stocks:

Alphabet (Google) is down 8.2%, while Meta (Facebook) is up 10.6%.³
Protectionist policies are creating winners and losers, with companies like Caterpillar and Hasbro struggling due to tariff concerns.⁴

Meanwhile, the latest weekly data shows large-cap stocks outperforming small caps, but with a sharp decline in consumer-related sectors. This was triggered by Walmart’s weaker-than-expected earnings guidance, which spooked investors about a potential downturn in consumer spending.

Investor Sentiment: Pessimism on the Rise

Despite index gains, investor confidence is eroding.

Bearish sentiment hit 47.3% in mid-February, the highest since November 2023.
Investors are worried about:
- The impact of tariffs on inflation and economic growth.
- Uncertainty around Federal Reserve interest rate cuts—expectations for multiple cuts in 2025 have faded due to persistent inflation.⁴
- Regulatory uncertainty, particularly in health care, where a Department of Justice probe into UnitedHealth Group sent health care stocks lower.

Meanwhile, investors are quietly pulling money out of stocks.

In January, U.S. equity mutual and exchange-traded funds saw $11 billion in outflows.⁴

Even with major indexes holding firm, there’s a growing sense of unease beneath the surface.

Are We in a Market Bubble?

While some investors worry about declining sentiment, others fear the opposite—that markets are getting too speculative.

Speculation is Running Hot

Options trading hit a new record in January, with zero-day-to-expiry (0DTE) contracts surging, signaling a rise in risky short-term bets.⁵
Meme stocks are back: Palantir, GameStop, and BlackBerry have all gained over 90% in the past year, driven by speculative trading.⁵

Stock Valuations Are Getting Stretched

The S&P 500’s price-to-earnings (P/E) ratio recently hit 22x expected earnings, above its 10-year average of 19x, and close to the dot-com bubble’s peak of 26x.
While strong earnings growth is supporting valuations, high interest rates could cut into profits, making further stock gains harder to justify.⁵

These signs raise concerns that investors may be taking on excessive risk—setting the stage for a potential correction.

Looking Ahead: The Importance of Disciplined Investing

At FWS, the focus remains on long-term discipline and research-driven insights. While headline indices may seem calm, it’s essential to recognize the underlying shifts within the market.

Key Takeaways from Recent Market Trends:

· Not all stocks are moving in the same direction—rising dispersion means some stocks will significantly underperform even as indexes rise.

· Consumer spending uncertainty is a growing concern, particularly after Walmart’s weak forecast.

· Market sentiment is turning cautious, with bearish investors reaching their highest levels since 2023.

· Options and meme stock speculation is increasing, raising questions about market stability.

· Monetary policy remains a wildcard, with the Federal Reserve signaling that rate cuts aren’t imminent.

Sources

January Market Commentary – Equity Performance & Economic Data.
Weekly Market Update – Consumer Weakness & Fed Policy Risks.
WSJ: An Investing Riddle – Stock Markets Appear Calm, But Stocks Are Turbulent.
WSJ: Investor Sentiment is at a Multi-Year Low – What it Means for Markets.
WSJ: Investors Spot Signs of Market Froth – Speculation is Growing.

Seeking Stability in Volatile Markets?

SEI — Fri, 13 Mar 2020 22:33:03 +0000

The stock market is always on the move, often taking investors’ emotions along for the ride.
Many investors are comfortable with passively following an equity index that is trending higher, but they tend grow anxious when the market pivots lower.
This nervousness can lead to snap investment decisions that end up being detrimental over the long term.

Global equity markets have been remarkably busy in 2020 so far. Volatility accelerated into March on heightened investor anxiety about the coronavirus outbreak and its uncertain impact on global growth and corporate earnings. With emotions running high, investors today may have difficulty recalling that they were generally were filled with optimism just two months earlier—when equities rang in the New Year with above-average annual performance.

This serves as only the latest reminder that the stock market is always on the move, often taking investors’ emotions along the ride. You may remember that the latest bull market in U.S. equities (as measured by the S&P 500 Index) reached its tenth birthday in March 2019. You may also remember that the oldest-ever bull seemed to celebrate over subsequent months by moving into new-high territory. What is perhaps more difficult to recall is that this historic performance was preceded by dramatically different performance just a few months prior: During the fourth quarter of 2018, amid concerns about rising interest rates, trade tension and softening economic growth, the S&P 500 Index plummeted toward bear-market territory (defined as a 20% decline over two months or more).

Investors were understandably rattled by the performance of U.S. equities that final quarter of 2018—particularly given the nearly unprecedented market calm of 2017. They also had no way of knowing that the aging bull was actually very much alive and would soon reach new heights. Unfortunately, those who acted on their anxiety by abruptly fleeing the market did not just abandon their equity holdings—they also abandoned the chance to benefit from the rebound of the S&P 500 Index that followed a few months later.

We think this serves as a cautionary tale against making invesment decisions based on emotional recations to market volatility. It’s important to remember that markets are always on the move. SEI’s Stability-Focused Private Client Strategies are designed with this in mind, for investors trying to mitigate possible losses while also striving to either maintain principal or grow wealth over the long term.

A More Stable Path

Our Stability-Focused Strategies are devised to help investors pave a potentially more stable path toward achieving their financial goals. As such, they take a relatively conservative approach to investing that is underpinned by a sophisticated focus on risk management:

Each Strategy has an explicit “drawdown target,” meaning we aim to keep investment losses within a maximum percentage drop (measured relative to the Strategy’s historical high value).
Each Strategy holds traditional fixed-income and cash investments, as well as stocks via mutual funds that have a lower risk profile than the broader equity market.
Each Strategy invests in a mutual fund that holds specialized multi-asset investments meant to provide extra risk mitigation when markets decline.

A Focus on Stability

We apply “behavioral finance” concepts to our Stability-Focused Strategies—that is, when it comes to managing risk, we consider how investors typically perceive and respond to risk in their personal financial lives. Our aim is to reduce the risk of loss by steering investors away from making rash decisions in the face of a market downturn.

In an effort to keep the focus on stability, our Stability-Focused Strategies emphasize diversified asset allocation by including multiple risk-management functions. For example, within the equity allocation, we include funds that seek to invest in lowvolatility stocks. Within the fixed-income space, we generally use funds that invest in short-duration bonds. The non-traditional portion of the Strategies, multi-asset funds, represents the active component that can allow the portfolio to weather volatile market environments over time.

Our approach was put to the test over the past three years, as the equity market experienced everything from steady calm to sharp declines and dramatic rebounds. In this relatively short time period, our Stability-Focused Strategies delivered on their stated objective to help investors aiming to maintain principal or grow assets while seeking to limit the risk of loss (Exhibit 1).

Exhibit 1: Stability First

Stability Delivered in Market Selloff

When the market selloff accelerated toward the end of 2018, SEI’s Stability-Focused Strategies succeeded in their objective of helping investors manage the risk of loss. As illustrated in Exhibit 2, not only have our Stability-Focused Strategies demonstrated significantly less volatility compared to the broad equity market over the 12-month period ending February 29, 2020, they appeared to remain less volatile even after the Index plummeted into bear market territory (when an index declines 20% or more from its last peak) and had its worst one-day plunge since 1987 on March 12, 2020.

Staying the Course

The market is always on the move. When it’s up, most everyone is happy. When it drops, it can be easy to overreact. Fear can tempt even the most disciplined of investors to make snap decisions to pull out of struggling investments. In doing so, they may undermine long-term success; it’s impossible to know precisely when to reinvest after a downturn, particularly one that is short-lived.

Since the stock market began its steady climb after the global financial crisis, not one of our Stability-Focused Strategies has fallen below its drawdown target. While this may not always be the case, we think it supports our belief that monitoring stability-focused drawdowns and standing ready to help mitigate the risk of future losses is yet another way in which SEI can help you stay on course in pursuing investing goals.

Glossary

Glossary: Drawdown refers to a peak-to-trough move down for an investment within a specific period of time, usually measured in percentage terms.

Index Definitions: The S&P 500 Index is an unmanaged, market-weighted index that consists of 500 of the largest publicly-traded U.S. companies and is considered representative of the broad U.S. stock market.

Glossary

Drawdown: A drawdown refers to the high-to-low decline over a defined period for an investment and is usually calculated as the percentage move lower from the recent high to low.

Index Definitions

S&P 500 Index: The S&P 500 Index is an unmanaged, market-weighted index that consists of 500 of the largest publicly-traded U.S. companies and is considered representative of the broad U.S. stock market.

Index returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results. Important Information This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results.

This information should not be relied upon by the reader as research or investment advice and is intended for educational purposes only. There are risks involved with investing including loss of principal. There is no assurance that the objectives of any strategy or fund will be achieved or will be successful. No investment strategy, including diversification, can protect against market risk or loss. The following risks may apply to the underlying investments: International: International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Emerging markets: involve heightened risks related to the same factors as well as increased volatility and lower trading volume. Bonds and bond funds: are subject to interest rate risk and will decline in value as interest rates rise. High Yield Bonds: High-yield securities may be more volatile, be subject to greater levels of credit or default risk and may be less liquid and more difficult to sell at an advantageous time or price to value than higher-rated securities of similar maturity. Treasury Inflation-Protected Securities: can provide investors a hedge against inflation, as the inflation adjustment feature helps preserve the purchasing power of the investment. Because of this inflation adjustment feature, inflation protected bonds typically have lower yields than conventional fixed rate bonds. Multi-Asset Funds and Dynamic Asset Allocation Fund: due to their investment strategies, the Funds may buy and sell securities frequently. The use of leverage can amplify the effects of market volatility on the Fund’s share price and may also cause the Fund to liquidate portfolio positions when it would not otherwise be advantageous to do so in order to satisfy its obligations. SEI Investments Management Corporation (SIMC) is the manager of the SEI Private Client Strategies. Performance Disclosure: Strategy returns do not represent actual trading and may not reflect the impact that material economic and market factors might have had on decision-making if SEI Investments Management Corporation (SIMC) were managing client assets. Performance assumes monthly rebalancing of the underlying funds back to their respective assigned allocations which may vary from the actual implementation date and rebalancing process in client accounts. Strategy performance shown is not meant to represent any individual client account. Actual client results may vary substantially. Not FDIC Insured · No Bank Guarantee · May Lose Value

*Performance is of Class F version of Strategies. The performance quoted represents past performance. Past performance does not guarantee future results. Current performance may be higher or lower. The principal value and investment return of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original value. Please see Performance Information section for important information on this calculation. Strategy expense ratios are as follows: Short-Term (0.41%), Defensive (0.62%), Conservative (0.77%), Moderate (0.95%). Performance assumes investment at the beginning of the period indicated and includes reinvestment of dividends and other earnings. It reflects all recommended SEI reallocations and changes among the funds, including changes in investment managers and funds included in the strategy. Information on allocations among funds, reallocations and strategy changes is available upon request. Strategy performance shown is not meant to represent any individual client account. Strategy performance is net of fees charged by SEI, but does not reflect any fee your advisor may charge which would reduce returns. For example, on an account charged 1% by a financial advisor with a stated annual return (net of mutual fund fees) of 10%, the net total return before taxes would be reduced from 10% to 9%. A 10-year investment of $100,000 at 10% would grow to $259,400, and at 9%, to $236,700 before taxes. S&P 500 Index performance is for illustrative purposes only and not intended to represent the benchmarks for the Strategies.

Volatility: What’s Normal?

SEI — Fri, 13 Mar 2020 21:41:36 +0000

Uncertainty surrounding the eventual economic impact of the coronavirus has driven market volatility higher.
It’s useful to realize that volatility has been higher in the past and can still increase from here.
It’s also helpful to understand that it is normal for market declines to occur at some point almost every year.

February of 2020 ended with a decline in the S&P 500 Index that quickly became a rout, pushing the index into correction territory. Economic uncertainties over the eventual impact of the coronavirus drove market volatility higher and punished the equity index with a vengeance.

While analysts debated whether this would be merely a short pause in the market’s upward trajectory or the beginning of an extended downturn, investors worried about losses in their portfolios as the index retreated from its previous all-time high.

However, the first trading day of March saw the S&P 500 Index have its second-largest percentage gain in over ten years, a reminder that upticks in volatility can swing the market in either direction.

Everything Old is New Again

It’s important to realize that volatility has been higher in the past and could still increase from its current level. The popularity of the S&P 500 as a benchmark for U.S. equities makes it a useful point of reference for gauging stock-market volatility.

While there are countless ways to measure stock market volatility, one relatively simple method is to calculate the rolling 12-month average difference between the daily high and low of an index relative to the price of the index itself at close of the market. By this measure, over the past full-year, volatility in the U.S. stock market remains well below its 30-year average, despite the recent higher change in trend (Exhibit 1).

While most analysts have attributed the higher volatility to accelerating concerns over the spread of the coronavirus, U.S. equity markets have had a long run of below-average volatility over the past 11 years, a period that has seen the S&P 500 Index enjoy an extend upward trend since bottoming in early 2009.

While it’s human nature to feel discomforted by the acceleration in volatility, it’s also practical to keep in mind that volatility is normal. It’s an expected, if unpredictable, part of investing and is as dynamic as the market itself. Nobody can say with certainty where either the market or volatility will go from this point.

Markets Move Down, Too

Although investors hope to see their portfolios generate gains, market declines are inevitable and occur, at some point, almost every year. While some declines are more significant than others, even in years with notable declines that cause uneasiness for investors, the market can still generate positive returns.

In fact, while the S&P 500 Index has delivered an annualized return over 6% over the past 20 years—a period which includes both the collapse of the tech bubble in 2001-2002 and the great financial crisis in 2008—the average intra-year decline over this period has averaged more than 15%. (Exhibit 2).

Our View

While the coronavirus issue is the current focus of concerns, when it passes, another will eventually arise. Something always poses a potential threat to the stock market. For this reason, we believe that a diversified portfolio is one of the best ways to reduce risk and increase the odds that investors will remain focused and stick to their investment strategies in good times and bad.

Glossary: Drawdown refers to a peak-to-trough move down for an investment within a specific period of time, usually measured in percentage terms.

Important Information: This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice and is intended for educational purposes only. There are risks involved with investing, including loss of principal. Diversification may not protect against market risk. Information provided by SEI Investments Management Corporation (SIMC), a wholly owned subsidiary of SEI Investments Company (SEI). Index returns are for illustrative purposes only and do not represent actual investment performance. Index returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results.

Market Corrections: More Common Than You Think

SEI — Fri, 28 Feb 2020 21:27:18 +0000

Equity markets around the globe fell into correction territory on intensifying concerns about the coronavirus.
On average, a correction in the U.S. stock market occurs every year or so and takes about three months to recover.
Despite the concern that corrections tend to cause, they are necessary for the health of the overall market.

On February 27, 2020, barely two months after returning an impressive 31.49% gain for 2019, the S&P 500 Index fell into correction territory—that is, when a stock-market index declines by 10% or more from its most-recent high. The drop was triggered by a sharp rise in fears about the China-born coronavirus and the impact of its rapid spread on the global economy. It’s understandable that investors may be alarmed by such a dramatic market plunge, but it’s important to recognize three important facts about stock-market corrections:

They are quite common.
They aren’t typically tied to an economic crisis.
They are actually necessary for the health of the overall market.

Corrections are common

Exhibit 1 provides some perspective: On average, U.S. stock-market corrections occur about once every year.

Before this month, the most recent correction in the S&P500 Index took place in September 2018 as intensifyingtrade tensions and rising interest rates took a toll onstock prices. Prior to that, in February of the same year,a surprise jump in average hourly earnings and anincreasingly hawkish Federal Reserve drove the U.S.equity market sharply below recent its high.

Corrections don’t usually equal crisis

A further look back provides additional perspective: As seen in Exhibit 2, the average recovery period for declines of 10% or more is about 12 months. This may sound like a long time, but one year is just a temporary setback for a long-term investment strategy.

Corrections don’t last forever

When markets correct, we think it’s best to just wait. And, as history shows, there’s a solid chance of recovering correction-related losses relatively quickly. No one likes to see the value of their investments decrease, but we know that ups and downs are a normal part of the investment cycle.

Index Definitions: S&P 500 Index: The S&P 500 Index is an unmanaged, market-capitalization-weighted index that consists of 500 of the largest publicly-traded U.S. companies and is considered representative of the broad U.S. stock market. Important Information This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice and is intended for educational purposes only. There are risks involved with investing, including possible loss of principal. Information provided by SEI Investments Management Corporation, a wholly owned subsidiary of SEI Investments Company.