These growing tensions have put more stress on already fragile global equities. Markets are still digesting the Fed’s shift to tighter monetary policy in the months ahead to combat high inflation. Through yesterday the S&P 500 was down about -11.34% this year and overnight futures are off another -2.25% or so. The Nasdaq 100 was down -17.22% as growth names had not been faring as well heading into the most recent selloff. A flight to safety is evident – bond yields are down from north of 2.00% to 1.85% earlier this morning and gold prices are spiking.
The humanitarian and political implications of Russia’s actions are nothing short of horrible. We could speculate for hours on what this might mean. Will Russia invade a NATO nation next? Will China publicly defend Russia’s actions? China is surely watching the world’s response closely as there are great similarities with how China views Taiwan. How far will the U.S and EU take sanctions to impact Russia in a more meaningful way?
While hyperbole is thrown around often, we can’t help but let our minds wander. Economically, will this slow global growth? Will this curb rate hike actions the Fed was thinking about? Will that mean high inflation persists for longer? Surely with oil climbing to over $100/barrel, gas prices won’t be dropping anytime soon… the list of talking points goes on.
Fortunately, or unfortunately depending on how you view the world, the stock market does not trade based off emotions over longer periods of time. Panic is rampant in the market and maybe justifiably so. However, what we do know is that we should not invest based on emotions. In times of panic, it is important to remember our goals and why we invest. For most clients, you likely have 10+ years to live and need growth and income to support your lifestyle and aspirations for leaving a legacy. Our strategic planning accounts for these times of extreme market stress, and we must remember that with good times, comes some tough times. If it can bring some comfort, we have found that an overwhelming majority of the time, when markets are up more than 20% in a year (like 2021) there is a pullback ranging from 5-30% the following year. Since World War 2, when that pullback begins in January or February, the market has finished the year positive nearly every time. To that point, we are looking for opportunities to take of advantage of this elevated volatility.
As always, we are available for you if you have any questions or concerns with your investments or asset allocation.