It has been said that change is the only constant, and the investing world is no exception. For more than a year, we’ve seen the effects of a rapid change in inflation and interest rates on the financial markets.
These have been difficult times for investors. As the central banks continue their fight against inflation, much of the ongoing financial market volatility relates to the uncertainty over the path forward for interest rates. Consider the situation to start the year: Good economic news was perceived as bad news by the markets, creating worries that the central banks would continue raising rates. This sentiment has continued due to uncertainty after the collapse of Silicon Valley Bank in the U.S., a reminder that the aggressive rate hikes were likely to have consequences.
While it may be hard to see beyond today, there will be a time when inflation is eventually brought under control, though patience has been needed. As investors, we would be wise to remember that changes in interest rates, inflation, monetary and economic policy and many other factors have always created near-term uncertainty in previous times. Every financial cycle has its own challenges that differ from those that came before. Yet, this doesn’t preclude the opportunity to continue building wealth. Throughout time, the companies that succeed in meeting the challenge of change are rewarded with higher stock prices. And, over time, in spite of the many challenges, economies have continued to grow, demonstrating our collective ability to adapt and advance. This time is no different.
One such reminder may come with the excitement generated by the artificial intelligence (AI) chatbox, ChatGPT. With its potential disruption capabilities, in a recent OpEd, Henry Kissinger went so far as to say that the evolution of AI may “redefine human knowledge, accelerate changes in the fabric of our reality and reorganize society.”1 While these are very early days — it is premature to suggest exactly how this technology will shape the future — ChatGPT demonstrates the human pursuit to innovate, one of the underlying drivers of growth throughout time. Business cycles have operated under long waves of innovation; Earlier revolutions, such as those sparked by the development of railroads, electricity and the automobile ignited upwaves of economic growth that lasted for many decades. Our focus has always been on the longer term, and though we face current challenges, there are many reasons to expect that future growth will continue.
Equally important, we are here to manage through the ever-changing times. A sound investment process involves having a plan to set priorities, assessing the changing landscape and the potential opportunities to come, in conjunction with the risks involved, and making informed decisions when necessary — all with a view for the longer term. Thoughtful analysis, evaluation and portfolio oversight are skills that should be trusted to help guide us through the unavoidable cycles. While it may be easy to get discouraged with current conditions, have the patience to see this period through. Try to look beyond today — we will get through this difficult period — markets and economies will adjust and better times lie ahead.