Understanding Market Volatility
In today’s unpredictable economic environment, market volatility remains a constant challenge for investors. Geopolitical tensions, shifts in government policy and unforeseen global events all contribute to frequent market fluctuations, often creating stress and uncertainty. Recent activity in the markets has served as a powerful reminder of just how quickly sentiment can shift. In the first week of April, global equity markets experienced a few dramatic swings both up and down, similar to those seen in the early days of the COVID-19 pandemic. This activity was largely triggered by shifting news about U.S. tariffs, which rattled investor confidence and reignited concerns over global trade tensions. While volatility like this can be alarming in the short run, it is important to remember that corrections are points in time, while the potential for wealth happens over the long term with the chart below emphasizing the importance of remaining invested even during the most uncomfortable market swings.
Missing the Best Days in the Market, Growth of $10,000 from 1988-2024
Similarly, practicing emotional discipline is one of the most important—yet hardest— skills for investors. Markets are naturally volatile, and it is easy to let emotions take control. Emotions are often a false indicator of opportunity; fear during downturns can drive investors to sell at a loss, while overconfidence in bull markets may lead to taking on too much risk. An emotional reaction during a volatile time can potentially derail long-term financial goals and lead to costly mistakes. To avoid these traps, it is essential to build a durable investment portfolio. Define your goals, understand your risk tolerance and commit to a long-term strategy. A robust plan can also prevent obsessively monitoring the markets. Instead, stay focused on the big picture. By maintaining emotional balance and trusting your plan, you will be better equipped to ride out volatility with confidence.
That is where Clarendon Private comes in: Constructing a well-diversified portfolio that reflects your personal goals, timelines and risk tolerances—are key components that may act as a buffer against market swings. For instance, while U.S. equities have been choppy thus far in 2025, a well-balanced portfolio that includes global equities and fixed income has been able to cushion some of the volatility with stability and positive returns. Additionally, proactive portfolio management is crucial during these periods. This includes monitoring portfolios for rebalancing opportunities, capitalizing on tax-loss harvesting strategies, making tactical adjustments as market conditions evolve and stress-testing your financial plan against various market scenarios to help you stay aligned with your goals.
Where to go from here
While market volatility is an inherent part of investing, it does not have to negatively impact your financial goals. Focusing on long-term objectives and maintaining emotional discipline can help manage market fluctuations more effectively. Despite volatility in domestic markets during early 2025, diversification can help smooth out the ride and may even provide growth opportunities. Though emotions are a human trait, it is important to remember that bullish and bearish sentiments come and go. See, for example, the following chart which notes significant historical events and their impact on the markets over time. By embracing these strategies and taking advantage of opportunities in various parts of the market, you can ride out market uncertainty with confidence and remain focused on your long-term goals.
Stocks, Bonds and Inflation: Monthly Returns since 1926
Disclosures
The information provided is illustrative and for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.
The views expressed in this commentary are subject to change based on market and other conditions. This document may contain certain statements that may be deemed forward looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur. Certain targets within the presentation are estimates based on certain assumptions and analysis made by the advisor. There is no guarantee that the estimates will be achieved.
All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.
No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. All investments include a risk of loss that clients should be prepared to bear. The principal risks of Clarendon Private’s strategies are disclosed in the publicly available Form ADV Part 2A.
Diversification does not ensure a profit or guarantee against loss. Asset Allocation may be used in an effort to manage risk and enhance returns. It does not, however, guarantee a profit or protect against loss. Index returns are unmanaged and do not reflect the deduction of any fees or expenses.
Comparisons to any indices referenced herein are for illustrative purposes only and are not meant to imply that actual returns or volatility will be similar to the indices. Index returns reflect all items of income, gain and loss and the reinvestment of dividends and other income. You cannot invest directly in an Index.
Fixed Income
- Bloomberg U.S. Aggregate Index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities.
- IA SBBI US IT Government index measures the performance of a single issue of outstanding US Treasury note with a maturity term of around 5.5 years. It is calculated by Morningstar. Returns for 1934 to 1986 are obtained from the CRSP Government Bond File and returns for 1987 to 2014 are calculated from The Wall Street Journal prices.
Equity
- The S&P 500 Index is a capitalization-weighted index designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
- IA SBBI US Large Stock index tracks the monthly return of S&P 500. The history data from 1926 to 1969 is calculated by Ibbotson.
Other
- Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Indexes are available for the U.S. and various geographic areas. Average price data for select utility, automotive fuel, and food items are also available.
Clarendon Private, LLC (“Clarendon Private”) is a registered investment advisor. Advisory services are only offered to clients or prospective clients where Clarendon Private and its representatives are properly licensed or exempt from licensure. For additional information, please visit our website at https://www.clarendonprivate.com/ or the Investment Adviser Public Disclosure website at www.adviserinfo.sec.gov by searching with Clarendon’s CRD # 316616
