Skip to main content

«Vendre au son du clairon, acheter au son du canon»

Dr. Roman von Ah

Dr. Roman von Ah


Economics Financial Markets

Back to overview
Next post

Two major issues are preoccupying the stock markets: On the one hand, Russia's current threatening gestures towards Ukraine are rightly worrying market participants on the global capital markets. And on the other hand, the markets - after an excellent year for equities in 2021 - have reacted nervously to higher inflation rates and & interest rate fears in 2022 to date, correcting by over 10%.

Two major issues are preoccupying the stock markets: On the one hand, Russia's current threatening gestures towards Ukraine are rightly worrying market participants on the global capital markets. And on the other hand, the markets - after an excellent year for equities in 2021 - have reacted nervously to higher inflation rates and & interest rate fears in 2022 to date, correcting by over 10%.

The following chart shows since the beginning of the year the percentage changes of gold (+5.05%, black line / blue area), stocks USA SP500 index (-13%, green line), stocks Switzerland SPI index (-11.5%, purple line as well as stocks Germany Dax index (-12.4%, red line). The highly speculative vehicle Bitcoin has lost twice as much as the equity markets with almost 24% (yellow line):

Equity correction since the beginning of 2022

Aktienkorrektur seit Anfang 2022

Source: Bloomberg

One may ask whether you should react to this with your investments or not. Will stock levels continue to fall? Maybe, but you should still leave your investments alone. Corrections are healthy, something completely normal and the current slump is by no means unusual. So stay calm.

The short-term situation in the markets may still be in flux; this should not change your long-term financial goals or your strategy. The recent slump in the stock markets is the obvious reaction to fears of interest rate hikes - caused by currently significantly higher inflation rates as well as uncertainty about the further course of the Ukraine crisis provoked by Russia.

For professionally advised investors, short-term fluctuations should make no difference to your investment strategy. If your investment goals are the same as they have been in recent months, then your strategy and portfolio should also remain the same.

Here's our advice to anyone who is once again questioning their investments or even panicking about their investments.

1. take a breath

It's never wise to make decisions - financial or otherwise - on impulse. Investors, namely stock investors often react impulsively to bad news, as a reaction to the unknown. Such fears are hardly uncommon in human history and are firmly anchored in the brain in the amygdala (amygdala complex), responsible for fear conditioning. Investors are and always will be susceptible to emotional overreactions.

2. Ask yourself why you are invested in the first place.

Is it about your (early) retirement? Are you looking to make up for missed savings opportunities? Are you saving with an eye toward a larger investment?

Have any of your goals changed due to the recent market correction? Probably not. Unless you are doing something that is inconsistent with your original investment goal, there should be no reason to take radical action.

If you're having trouble processing events on your own, bring in professional help. Just as a patient meets with his or her doctor before surgery, it might be a good idea to meet with an investment professional and have an honest conversation about where you are on the path to achieving your financial goals.

3. Exhale

While market movements may seem unsettling, it's perfectly normal for the stock market to rise and fall - and we all need to be prepared for that, both emotionally and financially. 

Markets overreact to geopolitical risks: for example, the Iraqi invasion of Kuwait caused stock prices to fall 17% and oil prices to double, but stock prices were back to their peak 4 months later.

The risks with Russia are not in the economy or the financial sector, but in commodities. Russia accounts for 10% of world oil production, 41% of European gas imports, and is a major supplier of fertilizer, palladium, nickel, potash, and aluminum. The world will not and cannot do without it, which will continue to bring Russia attractive revenues from its energy business.

If, contrary to expectations, the crisis were to go on for longer or come to a head - which we do not currently expect - central banks would respond by raising interest rates less in the short term and/or scaling back their bond-buying program less.

Investing with your financial future in mind requires a healthy understanding of opportunities & risks, patience & professional diligence.

New comment

The content of this field is kept private and will not be shown publicly.
1 + 3 =
Solve this simple math problem and enter the result. E.g. for 1+3, enter 4.

Read our data protection notice

Next blog post

Dr. Martin Schlatter

In October 2021, the inflation rate in the U.S. exceeded 6% for the first time in decades; the result was a significant rotation on the stock markets. Inflation fears have erupted and redirected expectations: To curb inflation, central banks would have to completely change their policies, away from low interest rates and generous money supply expansion to rising interest rates.

Go to post