Market Commentary: Russian Invasion
The war in Ukraine has brought additional uncertainty to a market dynamic that is already unsettled. The volatility, intraday reversals, and headline risk that have been present since the beginning of 2022 continue. And from our perspective, there isn’t much changing that will cause the uncertainty to abate.
Our view is that the Russian invasion of Ukraine is a geo-political with limited economic implications beyond Russian interests. A look back on the past forty (“40”) years suggests such instances are short-lived and their impact on markets is short-lived. However, if the situation escalates, drawing more nations into the conflict, then we could see more downside market moves and real global economic impacts; but, we aren’t there as of this writing.
The more important issue from our perspective is the question of inflation and the policy response necessary to resolve it. We do not believe there has been any clarity brought to the matter in the week just passed. The preconditions we called out at the beginning of the year remain: 1) corporate earnings growth is strong, 2) stock valuations remain elevated, 3) inflation is high, 4) Fed policy is changing.
Until we get additional clarity on the inflation front and the policy response, then uncertainty remains. So long as uncertainty remains, volatility and downside market moves are still in play. Also, the Fed is still printing money as of today which is proving additional fuel to the inflationary fire. The question is whether the Fed is behind and, if they are behind, how far they are behind. There is still a lot of uncertainty on these two questions.
Our advice continues to be the same: 1) take a long-term view, 2) hold investments that are appropriate for your objectives and risk preferences, 3) speak to your advisor to review your objectives and risk tolerances if something has changed. Confronting volatility and having your account drop in value is never fun: but it goes with investing. Over the long-term, markets tend to be higher.