The Market, Doing Its Job.
By Sharon Allen, CFP®, CTFA and Daly Andersson, CFA, CFP®
“In the short run, the market is a voting machine but in the long run, it is a weighing machine.” — Benjamin Graham
While this quarter has brought with it volatility and heightened anxiety from many investors, it has also shown us that the market still works. The stock market is designed to identify fair prices for all publicly traded stocks through supply and demand and a process known as ‘price discovery’.
Analysts and institutional investors around the world buy and sell securities based on what they assess to be a fair, justified price for the company’s future earnings and growth prospects. For securities that are publicly traded, price discovery happens on a continuous basis throughout each trading day. There is transparency as you can see prices fluctuate intra-day as market participants digest information about the global economy, domestic policies, and company prospects. The volatility we see in the stock market is a sign that prices are adjusting rapidly to new information.
The efficient market hypothesis, developed by Eugene Fama in the 1970s, posited that the stock market efficiently incorporates all available relevant information in the prices of publicly traded stocks. As Fama himself noted, “The market is not perfectly efficient, but it’s more efficient than most people think.” What this means is that you don’t need to predict the future or rely on ‘hunches’ and ‘gut feelings’ to be a successful investor. Current stock prices reflect all current information and future expectations. This is the foundation upon which modern portfolio theory was developed.
Time and time again, the market shows us that when new information is disseminated, the prices of securities fluctuate to find the fair market price. In times when there is a great deal of change or uncertainty, that often leads to greater fluctuation of prices as market participants digest information and expectations.
This quarter, we have watched the market do its job. As information about US global trade policies were announced and summarily negotiated, market volatility increased as collectively investors vied to re-price securities based on new information.
There are three critical factors of a healthy and functioning market:
- Market efficiency
- Transparency
- Effective price discovery
We have seen all of these factors on full display in the markets in recent months. A sign of “normal” amidst the tide of headlines that feel out of the ordinary.
Perspective From The War Room
“The certainty of our new normal is uncertainty. This will continue for a long time.” — Rosie Rios
In early May, Daly and Sharon attended the CFA Annual Conference in Chicago where they heard viewpoints from some of the most noteworthy financial scholars of our time. Among them was Rosie Rios, who served as the 43rd Treasurer of the United States and holds the distinction of being the longest serving Senate-confirmed Treasurer, having served from 2009 to 2016 during and through the height of the financial crisis. Her signature appears on over $1.8 trillion in U.S. currency, but more importantly for our purposes, Rosie served on the Treasury and Federal Reserve Transition Team in November 2008.
To say that Rosie knows what has happened behind the scenes in Washington D.C. during times of crisis is an understatement. She was in the war room during the financial crisis, and she was integral in the creation and implementation of the policies that ultimately shored up the American public markets and banking system.
In response to the current times, Rosie said that “the certainty of our new normal is uncertainty. This will continue for a long time.” Yet fundamentally, the economy, banking system, and markets are strong and resilient. She has seen scary times, and today she isn’t scared. As she put it, “We’ve stress-tested these systems under the most extreme conditions imaginable, and they held.”
What This Means for Your Portfolio
“Time in the market beats timing the market.” — Jack Bogle
When markets experience volatility, it’s natural to feel concerned about your investments.
However, what we’re witnessing is not a breakdown of the system—it’s the system working exactly as it should. Every price movement represents thousands of investors and institutions processing new information and adjusting their expectations accordingly. This continuous recalibration is what keeps markets honest and prices fair.
The volatility you see isn’t chaos; it’s clarity. It’s the market’s way of telling us that circumstances are changing and prices need to reflect those changes. Rather than viewing this as something to fear, we can appreciate it as evidence that the mechanisms designed to protect and grow your wealth over time are functioning properly.
For long-term investors, these periods of heightened activity serve as reminders of why diversification and disciplined investing matter. While individual stocks may swing dramatically as new information emerges, a well-constructed portfolio designed around your specific goals and risk tolerance can weather these storms and continue growing your wealth over time.
It really is about time “in” the market. As you can see from the chart below which shows market data from 1954 through 2024, the longer an investment time horizon was, the narrower the band of returns investors experienced. The widest range of outcomes for stocks were over a 1-year time period with the one-year returns clocking in at a high 52% and a low of -37%. However, when the time horizon is lengthened to just 5 years, the range of annualized returns narrows and you see that the best 5-year annualized returns being 29% and the worst being -2%…a compelling upside for the amount of temporary downside risk.
Volatility can be especially powerful over shorter periods of time. When your time horizon lengthens, we see that investors have historically rewarded for the equity risk they accept.
It’s About Time “IN” The Market
Source: 2025, May 30, JPMorgan Asset Management, “Time, diversification and the volatility of returns”
Looking Forward
As we navigate this environment of uncertainty, remember that uncertainty itself is not new. What is constant is the market’s ability to adapt, adjust, and ultimately find equilibrium. The very volatility that causes anxiety today is the same force that has driven long-term wealth creation for generations of investors.
The market is doing its job—efficiently processing information, adjusting prices, and providing opportunities for patient, disciplined investors. Our job is to stay focused on your long-term objectives and trust in the process that has served investors well through countless cycles of uncertainty and change.
In times like these, we’re reminded why having a thoughtful investment strategy and experienced guidance matters. The market’s efficiency doesn’t eliminate the need for careful planning, appropriate diversification, and the discipline to stay the course when emotions run high.
The certainty of uncertainty, as Rosie Rios noted, is our new normal. But with markets that work, systems that are resilient, and strategies designed for the long term, we can navigate this uncertainty with confidence.
Sources & Disclosures
2025, May 30, JPMorgan Asset Management, “Time, diversification and the volatility of returns”
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