Checked your stock portfolio or 401(k) balance recently? If so, you likely felt a sinking feeling in your stomach and worry over what to do next. You might well have seen your balance drop a whopping 10% in recent days. If you were seduced by Bitcoin and its fickle associates, the spreadsheet likely will look worse.

The stock market has been in a free fall over the last few days, a scary succession of mounting declines. It’s not hard to identify the culprits: The world’s tardy central banks now are focused on fighting raging inflation and raising interest rates instead of flooding us with cheap money, the nature and timing of the omicron recovery remains uncertain, and Vladimir Putin is threatening to destabilize the geopolitical landscape by invading Ukraine.

But when it comes to the markets, we need some context from a longer term.

Even though the recent declines have been enough to make us need antacids, they are (as we write) only a fraction of the gains the market enjoyed in 2021, when the S&P 500 returned almost 30%. History teaches us that such a level of annual return always was unsustainable in the long term; some solace can be found by comparing your present balance to what you had in 2019 or 2020.

We’d also argue that the coming interest rate hikes (likely as many as three in the month of March) have been priced into the market already, so unless the Fed makes a sudden divergence from conventional wisdom, which would not be desirable, those hikes should not cause further surprise. Even after the projected hikes, interest rates likely will remain very low by historical standards. It’s just that memories are short.

Putin, of course, remains a wild card, but we’re hoping the uptick in response to his aggressions will put the brakes on his empire building. Any kind of retreat or other good news for Ukraine likely will be a boost for the market.

Most of all, though, we still see a recovery coming as the omicron variant stops burning through the population, not a recession. Logic suggests this must swell the bottom lines of a variety of companies, many of which have been suffering from moribund demand. Not long ago, there was talk of the roaring ’20s. That was likely an overstatement, but the likelihood remains of a market-friendly expansion in economic activity.

Certain hard truths are being faced and we say it is better to do so right now. Unprofitable companies are just that and not necessarily deserving of unconditional market support. The demon of inflation clearly was underestimated by the Biden administration.

Investors, especially young ones, have become far too used to returns that defy logic, not just in the stock markets but also in the property sector, where the huge gain carousel of 2020 and 2021 must also one day come to a halt. Be warned if you are buying at the top.

Markets thrive first and foremost on profits, even if the doings of governments often seem to take the leading role. And it would help the situation for the Biden administration to acknowledge that truth.

We think Fed Chair Jerome Powell is correct when he says that the drag on revenues will be temporary.

The salient questions going forward are whether this group of leaders can wrestle inflation to within manageable proportions without sending us into a recession, and whether American business can control costs, feed demand and operate profitably this spring as this nation emerges from its collective basement and goes out to spend money.

— Chicago Tribune

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