All Eyes on Ukraine, Oil, and Inflation: Uncertainty Prevails

The Russian invasion of Ukraine has now been underway for 13 days. There is tremendous uncertainty surrounding the conflict, but one thing seems clear: the duration seems likely to extend for much longer than most experts thought it would when it began. The most important economic impact for the West is the impact of this conflict on crude oil. As I write this, oil is trading at $125 per barrel after spiking to $135 earlier Sunday. Below is the five-day Crude oil price chart through last Friday. While this latest surge in oil is due to expected global production shortages related to the Ukraine conflict, we were confronting inflationary pressures and rising oil prior to the events in Ukraine. The underlying inflationary impulse combined with the additional Ukraine-related pricing pressure could mean much higher oil prices over the next several weeks. Time will tell.

Stock futures are down and Asian markets are off meaningfully at this hour due to oil and the uncertainty of the Ukraine conflict. VIX, the so-called fear index, is trading at 32. This is an elevated level suggesting some fear, but not suggesting extreme fear. If this index spikes above forty, this could suggest meaningfully deteriorating conditions.

The chart below shows the major indexes for last week. All in all, the markets are holding up reasonably well given the inflationary picture and the coming Fed tightening cycle. If we were to proffer a guess, we’d say the likely direction is down from here due to these factors. So long as uncertainty remains, we expect more volatility and downward pressure.

In the week ahead, we will get a reading on retail gas prices, oil production and consumer prices. We expect more inflationary readings that will again be above expectations. Notable earnings this week are Disney and Qualcomm.  Generally, we expect earnings to continue coming in strong. Prepare for more alarming headlines and investor nervousness.

Our advice continues to be the same: take a long-term view and continue to dollar cost average into the market. If you need reassurances, please speak to your advisor.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which Investment(s) may be appropriate for you, consult your financial advisor prior to investing. Information is based on sources believed to be reliable, however, their accuracy or completeness cannot be guaranteed. No investment strategy can assure success or completely protect against loss, given the volatility of all securities markets. Statements of forecast and trends are for informational purposes and are not guaranteed to occur in the future. All performance referenced is historical and is no guarantee of future results. Securities investing involves risk, including loss of principal. An investor cannot invest directly in an index.
Advisory services offered through WealthPlan Investment Management, a subsidiary Registered Investment Advisor of WealthPlan Group, LLC.