Markets and economy

Perspectives on banking developments and volatility

Market volatility may come and go in the months ahead, so it’s important for investors to stay focused on what they can control, like maintaining balance and diversification in their portfolios.
3 minute watch
  •  
March 16, 2023
Markets and economy
Market volatility
Video
Market & economy insights
Forecasts
Inflation
Interest rates
Banks
Article

In this short video, Joe Davis, Vanguard’s global chief economist, discusses volatility in the financial sector sparked by two recent bank failures and shares his views on inflation and central bank policy.

Transcript

Joe Davis: Given recent headlines and market volatility, we really know that the importance of Vanguard’s investment philosophy and that long-term perspective that we all share, that’s when its strength truly is magnified. Certainly we’ve seen market volatility increase around the financial markets around the world. We’ve seen concerns emanating particularly around liquidity in the financial markets and in certain financial institutions.

Now importantly, we have seen some policy responses, both in Europe as well as in the United States, that in my judgment address some of the root causes of some of this recent market volatility. And ultimately, policymakers will always remain focused on broad-based financial stability, but we also shouldn’t confuse that with saying that we will not see financial volatility at times in the months ahead.

Which brings us to our economic and market outlook. At the beginning of the year, our investment and market outlook was one focused primarily on inflation, which is something that we’ve all had to deal with in our personal lives. It has come down a little bit, but it’s certainly still elevated and our forecast for the months and quarters ahead remains unchanged and that is we will continue to see inflation come down, but that so-called “disinflation,” it will come at some cost. A cost in terms of a slowing economy in the United States and all parts of Europe and other developed markets around the world. And I think policymakers, over the course of this year, they may have some more normalization of interest rates to do to ensure that price inflation comes down to a more reasonable and manageable level.

Bringing inflation down was never going to be easy and we were going to see an economic slowdown associated with that course. But as both an economist and as an investor, I would also underscore that having a more stable and manageable inflation rate is perhaps one of the most important long-term outcomes for all of us as investors.

So in the months ahead, market volatility may come and go. And for all of us, I think it’s important to remember to focus on what we can control. It’s that balance and diversification in our portfolio and, most importantly, it’s sticking to our plan, because in sticking to our plan, it increases the odds we will be successful in helping to achieve our long-run goals. And part of those long-run goals of being successful means staying invested in the markets, because it’s market risk that is part of what leads to the long-run portfolio growth, but ultimately leads to us being successful on our plan. 

RELATED VIDEO

In this short video, Joe Davis, Vanguard's global chief economist, discusses the trade-offs facing the Fed in its efforts to achieve price stability. 

Watch now

Related items

Most Viewed

Ready to invest? See how to open an account
Start with this step-by-step guide to opening a personal investment account, such as a general investing brokerage account or an IRA.
Backdoor Roth IRA What it is and how to set it up
If you are a high-income earner, a Backdoor Roth IRA may be a good retirement investment option for you. Learn what it is and how to set up this type of retirement plan.
Who owns Vanguard?
Who owns Vanguard? Learn why we're proud to be the only investor-owned investment management company and how we focus on putting investor needs first.
Are bonds a good investment right now?
Learn how high-quality bonds can play a valuable role in your portfolio in a high-yield environment.
Top 6 tips: Your year-end financial checklist
Get a checklist with money saving strategies to maximize your end-of-year savings, minimize your tax bill, and start your 2024 financial goals strong.
Discover our new international fund

All investing is subject to risk, including the possible loss of the money you invest.

Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.

Diversification does not ensure a profit or protect against a loss.

Investments in bonds are subject to interest rate, credit, and inflation risk.

© 2023 The Vanguard Group, Inc. All rights reserved.