FidelityNow: Making sense of market volatility

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That's a great question.

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And it's true that markets have seen

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a strong run, but strong

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runs don't move in a straight line.

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After one of the strongest quarters

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for US equities in several years,

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it may feel surprising to see market

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volatility starting to pick up

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again.

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But in many ways, that's how the

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market works.

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When prices move quickly,

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expectations rise quickly too,

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and investors become more sensitive

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to new information.

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In my role as director of product

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research, I get a broad view

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across investment strategies,

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asset classes, and portfolio

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manager perspectives.

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So I wanted to step back from the

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day-to-day headlines and put the

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recent volatility into

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context.

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The key point is that this is not

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being driven by one

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single issue.

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Markets are digesting a combination

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of factors, including inflation,

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interest rate expectations.

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Energy prices, geopolitics,

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corporate earnings expectations,

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and some rotation within

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equity markets after a very

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strong run.

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On the economic side, the latest

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U.S. Job report was softer

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than expected, but

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the broader labour market story is

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not one of sharp deterioration.

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Unemployment remains relatively low,

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and the U. S.

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Economy continues to show areas

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of resilience.

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So I'd like to frame this as

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markets reassessing the

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range of possible outcomes,

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whether resilience continues,

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whether growth flows more

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meaningfully.

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And what that means for inflation

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and interest rates.

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Now, of course, inflation remains

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central to the conversation,

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and energy is a good example of how

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quickly the market narrative can

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change.

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A few weeks ago, the concern

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was an immediate oil shock tied

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to the Strait of Hormuz.

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More recently, oil prices have

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eased as additional supply from

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OPEC have helped reduce some

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short-term inflation pressure.

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That is encouraging.

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But energy remains a risk

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to Maunder because any renewed

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disruption could still feed back

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into oil prices, inflation

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expectations, and the interest

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rate outlook.

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Central banks, of course, are also

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in focus.

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In Canada, the Bank of Canada

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remained focused on inflation

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and external risks.

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And in the US, the notable change

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is not just new leadership under

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Fed Governor Kevin Warsh.

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But a potential shift towards less

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explicit forward guidance.

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And that really means that markets

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may rely more on

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incoming data to assess

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the path of interest rates.

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And this could add to some

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short-term volatility.

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On the equity side, part of the

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story is that markets have been

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remarkably resilient.

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A lot of the strength has come from

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areas like technology,

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AI, and semiconductors.

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But after a strong rally,

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the bar... Only gets higher.

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Investors want to see that earnings

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growth can continue,

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that AI-related investment can

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translate into real profit,

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and that market leadership can

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broaden beyond a narrow group

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of companies.

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So I'd characterise the current

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market environment as resilient,

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but more demanding.

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The economy has not broken,

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but markets are asking for continued

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confirmation from inflation,

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central banks.

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Corporate earnings, energy

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prices, and market breadth.

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I'd actually like to close with this

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chart that does an excellent job

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of illustrating the fact that

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pullbacks are not unusual,

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they are part of the normal

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experience of investing.

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Volatility is uncomfortable,

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but it is not a

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signal that the plan is broken.

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It is often the price investors pay

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for the opportunity to participate

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in long-term market growth.

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So in periods like this, the goal

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is not to predict every

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short-term move.

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The goal is to stay diversified,

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stay aligned with the plan, and

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stay disciplined while markets work

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through uncertainty.

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Markets don't reward comfort,

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they reward discipline.

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And discipline matters most when

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markets feel uncertain.