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The current volatility can seem like jarring mid-air turbulence during an overseas flight. As the markets struggle to regain balance, the key for investors is to avoid overreacting and to focus on your long-term objectives.

What's behind the volatility? If anything, the market drop may be the result of too much good news. Amid higher earnings for businesses, solid fundamentals, and enthusiasm over the new tax law, investment markets became overextended—leading to fears about inflation and rising interest rates. A change in leadership at the Federal Reserve, from Janet Yellen to Jerome Powell, added to the uncertainties. Meanwhile, rapid selling by complex quantitative investment programs drove markets down further.

What does this mean for you? While the calm markets of 2017 lulled investors into assuming otherwise, volatility is an inevitable and even normal part of markets and investing. Over the past 30 years, U.S. stocks have averaged three pullbacks per year of 5 percent or more.

It's an understandable question given the current volatility. But the fundamentals tell a different story, according to Joseph P. Quinlan, Head of Market & Thematic Strategy, and Lauren J. Sanfilippo, Vice President and Research Analyst, from the GWIM Chief Investment Office (CIO).

Despite the ongoing market turbulence, "in our analysis we find the fundamentals of the U.S. and global economy have rarely been better," they write in this week's Capital Market Outlook from the CIO team. In the U.S. "stronger economic growth, the tailwinds from tax reform and a currently weaker U.S. dollar all point to higher earnings for the S&P 500."

The current bout of volatility was touched off by a positive January payroll report, which stoked fears of rising consumer prices and interest rates. But those inflationary pressures are building for the right reasons, say Quinlan and Sanfilippo. They reflect the underlying strength of the economy.

At JATB, we help you monitor the fundamentals of the companies you hold stake in, see their market performances over a significant period of time and advise on a suggested way forward.


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