February 28, 2022
Perspectives have changed dramatically since we last wrote to you. Inflation accelerated, the U.S. reached essentially full employment, COVID has trended down sharply, and Russia has started the first land war in Europe since World War II. Our thoughts, prayers and heartfelt admiration are with the people of Ukraine as they fight to maintain their national sovereignty.
It will come as no surprise that the conflict in Ukraine has impacted investment strategy in several ways. Stock volatility has increased, particularly in those of companies with significant European exposure. Bonds had retreated due to expectations for Federal Reserve interest rate increases but got a small boost as investors fled to safe havens after the invasion. Oil prices surged. Lingering concerns that taxes would be increased to fund another round of government spending diminished; considering the conflict’s added inflation impact, particularly in energy and grocery items, and stock market declines, Congress is less likely to add the stress of higher taxes ahead of mid-term elections.
Our long-term focus has not changed, although we did make a move to reallocate our foreign investments, reducing exposure to Europe. These securities are already down but we believe it is still prudent to move to the sidelines for the time being. If this situation is resolved soon, as we all hope, economic recovery in the area will take some time. We will watch closely for opportunities to reinvest in that region.
It is difficult to maintain a calm perspective in times of geopolitical shocks. The chart below shows the market reaction to past events:
At this point the major indexes are about flat relative to where they were on February 23rd, the eve of the Russian invasion. Most of the market decline prior to that point was triggered by investor concerns of accelerating inflation and the anticipated interest rate hikes that would be needed to contain it.
Our team is monitoring all the impacts of this situation in addition to our normal dashboard of economic factors. We are happy to discuss specific questions or concerns you have regarding your portfolios and financial planning. Please do not hesitate to reach out if we can be of service.