To say we are living in unprecedented times would be putting it mildly. The highly transmissible Omicron variant continues to cast doubt on the pandemic’s end game, disrupting everything from global supply chains to inflation normalization. Adding fuel to the fire are rising geopolitical tensions and lingering uncertainties over monetary policy tightening and higher interest rates.
Supply chain pressures are starting to ease, which should ultimately
allow inflation to settle lower leaving little room for upside
surprises on this front. However, the pandemic still remains a risk to
global supply chains and inflation's normalization process.
Even if an increasing number of countries are moving away from severe restrictions in their fight against the virus, this is not the case for China (which is central to global supply) and cannot afford to let the virus circulate freely.
Looking back at the last 30 years, an acclimatization process whereby stocks tend to react nervously at the onset of a rate-hike cycle is not new or unusual.
History has shown U.S. stocks were usually quite volatile in the months following the first hike. However, at the end of the 12-month horizon, total returns were always in positive territory (see the following chart).
With regards to Russia and Ukraine, there is no guarantee things won't deteriorate further in the near term. However, the chart below should serve as a reminder that markets historically tend to trend upwards over the long term (despite momentary dips during crises).
As a general rule:
Investments will always be subject to the whims of market ups and downs and different types of assets in a portfolio do not undergo the same fluctuations.
Frequently, bonds are up when stocks are down. The more investors diversify the types of assets in their portfolios, the more they reduce the risks associated with market fluctuations. Using alternative strategies can help diversify exposure even further due to their lower average correlations with traditional investments.
NBI Liquid Alternatives ETF (NALT) is a strategy that takes advantage of market trends while aiming for maximum decorrelation with equities. As such, NALT seeks to lower volatility while aiming to provide positive returns.
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