March 10, 2022

Market volatility persists as investors grapple with inflation, the Russia-Ukraine crisis, and the likelihood that the Fed will soon start raising short-term interest rates. As of market close on Wednesday, the S&P 500 is down -10.25% for the year, while the Nasdaq and Dow have declined -15.27% and -8.26%, respectively. Growing uneasiness among investors has made the markets vulnerable to heightened volatility and downside, especially as new developments arise. This week, deteriorating conditions in Russia and Ukraine and rising oil prices have contributed to further declines.

Oil prices have surged in the aftermath of Russia’s invasion of Ukraine. The national average gas price topped $4.00/gallon in recent days, the highest since 2008. Higher oil prices, if sustained, will exacerbate inflation. The problem is oil produces a lot more than just gasoline – heating oil, diesel fuel, jet fuel, asphalt, industrial lubricants, and thousands of household products are all produced from oil.

On top of it all, we’re in the midst of a midterm election year. Midterm election years tend to have larger market corrections compared to non-midterm years, with an average decline of -19% in a midterm election year versus an average of -13% in the other three years of the presidential cycle. Fortunately, stocks typically rally into the election and are up one year from the bottom by an average of +32%.

The S&P 500’s current trend is remarkably similar to 1982, when we experienced the last major bout of US inflation, the Cold War and, coincidentally, a midterm election. As observed in the chart on the following page, stocks were able to rally into the November elections and through the end of the year despite high inflation and geopolitical risks.

Source: Strategas Research Partners. Past performance is no guarantee of future results.


The situation in Ukraine is intense and unsettling, with no end in sight. But if history is any guide, the conflict is unlikely to impact markets for an extended period of time. Historically, geopolitical events aren’t major market disruptors, taking just 22 calendar days on average to reach a bottom and 43 calendar days to recover with an average decline of -5%. While we don’t know if the Russia-Ukraine scenario will paly out in a similar fashion, we take comfort in the data observed from previous events.

Source: Strategas Research Partners. Past performance is no guarantee of future results.


After lift-off next week, the Fed is expected to continue raising rates through the end of the year. The Street is pricing in multiple rate hikes in 2022, though the Fed has been fairly divided on its timetable. Ultimately, the number of hikes approved will depend on the economic data that comes out prior to the meetings. The Fed will need to take extra caution not to spook investors or slow the economy too much. But if the Fed responds with a slow, measured series of rate hikes, stocks can move higher even as rates do. Here are the S&P 500 returns during the years with 4 or more rate hikes since 1978:


The S&P 500 was up 28.7% in 2021. That followed a +18.4% increase in 2020 (despite Covid) and a +31.5% rise in 2019. The stock market was due for a reset, but that doesn’t make it less painful when it happens. Following the immediate shocks to the equity markets caused by Russia-Ukraine and the first interest rate hike, the trend of economic and earnings growth will set the tone for equities going forward. As long-term investors, it’s important to maintain perspective and focus on economic and investment fundamentals. This strategy has rewarded investors over previous market cycles, and we believe the same will hold true today.


Maryland Capital Management, LLC. 
Last updated March 2022. This material has been prepared solely for informational purposes and is not intended to provide, nor should it be relied upon for, accounting, legal, tax, or investment advice. The information provided herein has been obtained from sources we consider reliable, but we do not guarantee its accuracy or completeness. These materials are subject to change, completion, or amendment from time to time without notice, and Maryland Capital Management, LLC. (“MCM”) is not under any obligation to keep you advised of such changes. The views expressed are those of the author as of the date referenced and are subject to change at any time based on market or other conditions.