Written by: Timothy Calkins, CFA

The financial markets have been volatile in 2022, following three consecutive years which provided strong, positive returns in most diversified portfolios. Even with the pandemic drawdown/recession, the markets did very well through that period.

In the history of the financial markets, drawdowns have happened regularly, and are the price (risk) that investors accept in exchange for the potential of attractive returns on their investments over time. Even knowing this, a market decline can feel particularly unpleasant after an extended period of positive returns such as were experienced in 2019, 2020, and 2021.

Behavioral researchers have found that the psychological pain investors feel from losses is significantly more acute than the pleasure they receive from gains of a similar size. This behavioral bias can lead to feeling that things are worse than they really are, overlooking the good returns experienced prior to the turn of the calendar year.

Market Volatility

What is driving the increased volatility in the financial markets? The simple answer is, uncertainty. The world is transitioning from a period of synchronized economic expansion, relatively stable prices, and international cooperation, to one of economic decoupling, rising prices, and increasing geopolitical tensions.

The Fed

A brief review of how 2022 transitioned to an aggressive Fed trying to control the damage to their reputation:

The FOMC statement from March 17, 2021 opined that, “Inflation continues to run below 2%…the ongoing public health crisis continues to weigh on…inflation…with inflation running persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2% for some time.” At this point, the February CPI data was available showing inflation of 1.7%.

A month later, the FOMC statement from April 28, 2021 acknowledged that “Inflation has risen,” but characterizes the rise as, “largely reflecting transitory factors.” The Minutes of the Federal Open Market Committee of April 27–28, 2021 state that, “The 12-month changes in total and core PCE prices were expected to move above 2% in coming months…Inflation was then projected to dip slightly below 2% in 2022 as the influence of these transitory factors diminished. The March CPI data was available showing inflation of 2.6%.

Timothy Calkins, CFA
Co-Chief Investment Officer

Timothy serves as a member of the Nottingham Investment Policy Committee. He brings over 22 years of investment experience to the team. Timothy is responsible for corporate and municipal credit research & trading, as well as contributing to our economic outlook and interest rate expectations. He also leads our alternative investment research and custom allocations, with a focus on private credit and liquid alternatives. Timothy’s membership and active participation with the Buffalo Angels group keep him connected to the local start-up community.

Nottingham Advisors offers both institutional and individual clients experience, sophistication, and professionalism when helping them achieve their goals. With over 40 years of serving Western New York and clients in more than 30 states, Nottingham tailors each solution to fit the specific needs of each client.

For more information about Nottingham’s offerings, visit www.nottinghamadvisors.com or call 716-633-3800.

Nottingham Advisors, LLC (“Nottingham”) is an SEC registered investment adviser located in Amherst, New York.  Registration does not imply a certain level of skill or training.  Nottingham and its representatives are in compliance with the current registration and notice filing requirements imposed upon SEC registered investment advisers by those states in which Nottingham maintains clients. Nottingham may only transact business in those states in which it is registered, notice filed, or qualifies for an exemption or exclusion from registration or notice filing requirements. For information pertaining to the registration status of Nottingham, please contact Nottingham or refer to the Investment Advisor Public Disclosure Website (www.adviserinfo.sec.gov). Any subsequent, direct communication by Nottingham with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides.

This newsletter is limited to the dissemination of general information pertaining to Nottingham’s investment advisory services.  As such nothing herein should be construed as the provision of personalized investment advice. The information contained herein is based upon certain assumptions, theories and principles that do not completely or accurately reflect your specific circumstances.  Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security. Adhering to the assumptions, theories and principles serving the basis for the information contained herein should not be interpreted to provide a guarantee of future performance or a guarantee of achieving overall financial objectives. As investment returns, inflation, taxes and other economic conditions vary, your actual results may vary significantly. Furthermore, this newsletter contains certain forward-looking statements that indicate future possibilities. Due to known and unknown risks, other uncertainties and factors, actual results may differ materially from the expectations portrayed in such forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of their dates.  As such, there is no guarantee that the views and opinions expressed in this article will come to pass. This newsletter should not be construed to limit or otherwise restrict Nottingham’s investment decisions.

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