After a terrible January for the markets, February continued the decline, with fears about inflation and Fed rate increases dominating the start of the month, only to be superseded by the Russian invasion of Ukraine. Although the Covid-19 news continued to improve, by the end of the month, markets had moved on from medical risks to economic and geopolitical fears. Looking forward, those are the risks that are likely to dominate, as Covid-19, while still with us, has left both the headlines and, apparently, the markets.

A question I have been considering, and which recent events have made more urgent, is what retired investors (or those close to retirement) should be thinking as they look at the inflation figures. Is there something they should be doing? If so, what?

In recent posts, we’ve looked at both the fundamentals underlying market response to the Ukraine invasion, as well as the historical data around similar events. The conclusions were generally reassuring to us as investors. Today, though, I want to do something a bit different. Rather than consider the specifics and what they might mean, I want to ask more general questions. How should we be thinking about this? And can we use that to draw any conclusions around the likely next developments?

Markets were down across the board in February, with U.S. indices dropping between 3 percent and 4 percent, while international markets were down 2 percent to 3 percent. Still, markets bounced back a bit to end the month. The reasons for this were twofold: interest rates pulled back in the U.S. and the medical news continued to improve.

The next phase in the Ukraine crisis has begun, as Russia has launched attacks on Ukraine. With a war underway, it’s unsurprising that the markets are reacting. Before the market opened, U.S. stock futures were down between 2 1/2 percent and 3 1/2 percent, while gold was up by roughly the same amount. The yield on 10-Year U.S. Treasury securities has dropped sharply. International markets were down even more than the U.S. markets, as investors fled to the more comfortable haven of U.S. securities.

I have been holding off on commenting on the Russia-Ukraine conflict until some sort of resolution occurred. Lots of things could have happened, and we could drive ourselves crazy worrying about the possibilities. But now something has happened, and it is time to take a look.

Yesterday was another bad one for the market, with the S&P 500 down more than 2 percent. The S&P as a whole is now down more than 8 percent from the peak, with the Dow down about 5 percent, and the Nasdaq down more than 13 percent as of this writing. What is going on—and will it get worse?

This will be a quick post, as I am finishing up a Commonwealth conference. As usual, it has been a wonderful chance to see old friends, make new ones, and have a great time in a beautiful place. It was as I expected, given the great people—and even better meeting planners—who make Commonwealth so special. In this case, at least, my expectations were well-founded and have been fully met. But today I want to talk about expectations in a more general way.

One of the major current risks to the market is the Fed’s tightening of policy. Much has been written about the Fed’s plans to raise rates, to start downsizing its balance sheet, and so forth. But what has been missing so far is the fact that many of the changes have already been factored in by the market—and what the market seems to be expecting is not really in line with the headlines.

Three hot topics at once. Talk about efficiency! Beyond efficiency, though, I do think there is a fairly deep connection here—and one that is worth talking about right now.