Weekly Buzz - Market volatility: How to handle the heat 🔥

5 minute read

Market sentiment has taken a hit lately – the threat of tariffs and trade wars has weighed on . Meanwhile, inflation is sticking around like that friend who doesn't get the hint when the party's over, which means the US Federal Reserve has to be cautious about rate cuts.

With all those uncertainties in the mix, it’s no surprise that markets have been volatile. The question is what you can do about it.

Diversification in action

Probably the last thing you want to do is try to predict when the next plunge will happen: dips are notoriously difficult to forecast. Even the pros with their fancy Ivy League degrees can't crack the code – a 10-year study found that 85% of active funds end up losing to the S&P 500. The first rule of investing still holds: it’s about time in the market, not timing the market.

Enter: diversification. Studies have shown that asset allocation is responsible for upwards of 90% of a portfolio's return variability over time. When the US market stumbles, your investments in other regions might hold firm. When equities wobble, bonds can provide ballast.

This isn’t just theoretical – we see it play out in real markets regularly. During the 2022 market selloff, US equities lost over 19%, while commodities gained 22%. When the dot-com bubble burst, the NASDAQ plummeted over 70%, but bonds gained more than 30%. These aren't cherry-picked examples – they demonstrate how different asset classes respond to the same economic environments in different ways.

A well-designed asset allocation strategy doesn't just spread risk – it puts each asset class to work doing what it does best. Equities across regions fuel long-term growth. Bonds deliver yield and stability. And then there’s gold: traditionally seen as a hedge against uncertainty, it tends to shine when uncertainty spikes – exactly the climate we’re in today.

What’s the takeaway here?

No one knows which market will perform the best – and that's the point. Diversification means you don't need to predict the future. It's both the simplest and most sophisticated approach to handling volatility. And perhaps the greatest benefit isn't financial at all – it's psychological. Knowing some assets may lag in the short-term while others lead means you're less likely to make emotional decisions during market swings.

Our General Investing portfolios are built with this principle in mind. Instead of trying to time the market, or guessing which region will lead, they’re strategically positioned across geographies, industries and asset classes, all in one package.

📰 In Other News: Amid tariff tensions, the US jobs market holds steady

While President Trump has delayed tariffs on Mexican and Canadian imports until April 2, trade tensions have cast a shadow over the US economy. But February’s jobs report did offer a silver lining: the US added 151,000 jobs – below the 160,000 forecast but still solid, with hiring in healthcare and transportation keeping things humming. The unemployment rate held at a near-historic low of 4.1%.

Over the past week, investors trimmed their expectations for US stocks – both the S&P 500 and Nasdaq moved below their 200-day moving averages (our Simply Finance below breaks this down). While US stocks grapple with uncertainties, their European counterparts have outpaced them.

The region’s financial stocks have picked up between 20% to 25% this year, while Germany's DAX index has climbed nearly 16%. If you’re looking to tweak your exposure to Europe – or any other region – our Flexible Portfolios make it easy to adjust your allocations.

These articles were written in collaboration with Finimize.

🎓 Simply Finance: 200-day moving average

A 200-day moving average is the average price of a stock or market index over the past 200 trading days. Technical analysts view it as significant when prices cross below this line, because it suggests the long-term trend may be shifting towards being bearish. Keep in mind, however, that this is simply an indicator based on price movements – not one based on corporate fundamentals.