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The S&P 500 has pulled back roughly 5% from recent highs. After a relatively steady stretch, moves like this can feel abrupt and uncomfortable.
This time, the source of the volatility is front and center. Conflict with Iran and a sharp rise in energy prices have created a new layer of uncertainty for markets. Roughly 20% of the world’s oil supply flows through the Strait of Hormuz, and any disruption has immediate ripple effects across the global economy.
The jump in oil prices risks choking off economic activity. It also creates renewed concern about inflation and interest rates. The result has been pressure on both the stock and bond markets. Even gold, often viewed as a haven in times of geopolitical stress, has experienced a meaningful selloff.
Ultimately, when broad asset classes move in the same direction, it can make diversification feel ineffective in the moment. Even so, most investors tend to focus on the stock market, which is generally the primary driver of portfolio risk and return.
As shown in the chart below, stock market declines are not rare events. In fact, they are incredibly common. Since 1928, the market has experienced a decline of 5% or more in 93% of calendar years. A 10% pullback has occurred in nearly two-thirds of years. Even larger declines, including bear markets of 20% or more, have happened in roughly one out of every four years.
Source: Morningstar Direct. Stocks represented by the IA SBBI LC TR Index from 1926 to 1971, and the S&P 500 TR Index from thereafter.
The key takeaway is simple. Volatility is not a sign that something is broken. It is a normal and expected feature of investing.
In many ways, volatility can actually be healthy for markets:
- Pullbacks help reset valuations
- Periods of excess optimism tend to get worked off
- Lower prices can improve forward-looking return expectations
- Volatility creates opportunities to rebalance
- Tax-loss-harvesting can improve after-tax outcomes
Of course, none of this makes volatility feel any better in real time. One of the biggest challenges for investors is that market movements are inherently unpredictable. Prices can shift quickly based on new information, which often arrives without warning. A single headline or policy comment can move markets sharply in either direction.
This unpredictability is what makes short-term market timing so difficult. Even if an investor gets out of the market at the “right” time, they still have to decide when to get back in. Missing just a handful of strong recovery days can have a meaningful impact on long-term results.
The bigger risk during periods like this is not the market itself, but how we respond to it. It is natural to feel the urge to reduce risk after declines or wait for more clarity before reinvesting. In practice, those decisions often lead to selling low and buying back at higher prices later.
Markets are inherently volatile. Diversification works over time, but it does not necessarily work every day. While we cannot control short-term market movements, we can control how we respond to them.
Periods like this are uncomfortable, but they are also expected. Staying disciplined in the face of that discomfort has always been one of the most important drivers of long-term success.
Week in Review
- Federal Reserve officials voted 11-1 to hold interest rates steady at their target range of 3.50%–3.75% following their March 18th meeting, the second consecutive meeting without a rate change. Along with the decision, the Fed released its latest Summary of Economic Projections (SEP), which includes the closely watched "dot plot" charting individual FOMC members' rate forecasts. The median projection for 2026 continues to signal a single 25 basis point cut, consistent with the Fed's December outlook.
- New-home sales hit their lowest level in over two years in January, tumbling 17.6% from December to a seasonally adjusted annual rate of 587,000 units, the weakest reading since October 2022. The pullback coincided with a notable softening in prices, as the median new home price slid 6.8% year-over-year to $400,500.
- February's Producer Price Index (PPI), which measures the prices producers pay to their suppliers, came in well above expectations, rising 0.7% for the month and 3.4% year-over-year, the highest annual reading since February 2025. Core PPI, which strips out volatile food and energy prices, climbed 0.5% monthly and 3.9% year-over-year. Both figures significantly overshot economist forecasts of 0.3% monthly gains, driven in large part by a 0.5% surge in services costs.
Hot Reads
Markets
- Fed Holds Rates Steady as Iran War Clouds Outlook (WSJ)
- Traders Now See Little Chance of an Interest Rate Cut This Year Following Fed Decision (CNBC)
- The Housing Bargain Hiding in Plain Sight (WSJ)
Investing
- How to Trade the War: Avoid Gimmicky Strategies and Overheated Assets (Jason Zweig)
- Ignoring the Noise is Impossible (Ben Carlson)
- The ETF Tax Loophole That Wall Street is Exploiting (Larry Swedroe)
Other
- The American Rare Earths Company Seeking to Topple China's Dominance - 60 Minutes (YouTube)
- NFL Films crew turns The Players Championship into an episode of Hard Knocks - Chasing Sunday (YouTube)
- How to Create Change - Simon Sinek (YouTube)
Markets at a Glance
Fund Returns
Sector Returns
Factor Returns
Source: Morningstar Direct.
Source: Morningstar Direct.
Source: Treasury.gov
Source: Treasury.gov
Source: FRED Database & ICE Benchmark Administration Limited (IBA)
Source: FRED Database & ICE Benchmark Administration Limited (IBA)
Economic Calendar
Source: MarketWatch
- Competition, Achiever, Relator, Analytical, Ideation
Josh Jenkins, CFA
Chief Investment Officer, Principal
Josh Jenkins, Chief Investment Officer, began his career in 2010. With a background in investment analysis and portfolio management from his previous roles, he quickly advanced to his current leadership position. As a member of the Lutz Financial Board and Chair of the Investment Committee, he guides Lutz Financial’s investment strategy and helps to manage day-to-day operations.
Leading the investment team, Josh directs research initiatives, while overseeing asset allocation, fund selection, portfolio management, and trading. He authors the weekly Financial Market Update, providing clients with timely insights on market conditions and economic trends. Josh values the analytical nature of his work and the opportunity to collaborate with talented colleagues while continuously expanding his knowledge of the financial markets.
At Lutz, Josh exemplifies the firm’s commitment to maintaining discipline and helping clients navigate market uncertainties with confidence. While staying true to the systematic investment process, he works to keep clients' long-term financial goals at the center of his decision-making.
Josh lives in Omaha, NE. Outside the office, he likes to stay active, travel, and play golf.
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