Posted by Guest Blogger Chad Roope, Vice President, Chief Investment Officer, Sequoia Financial Group, LLC
The attention of the world is focused on the Russia/Ukraine conflict. This geopolitical clash is concerning from several perspectives, particularly the potential human tragedy. In light of the interconnectedness of our global communities, however, it is important that we also examine the possible impact of this event across the economic landscape. With the S&P 500 in correction territory (down just over 10% from its recent high) and understanding that news headlines and the associated financial market reactions can be alarming, we have outlined some points for perspective on the situation and some practical, rational steps to consider during this volatile period.
Our primary economic concern is additional inflationary pressures on top of already high levels of inflation. Bloomberg News helps put this in perspective. Russia is the third largest global producer of oil and provides Europe with nearly 50% of its needed natural gas supplies. Ukraine is also a major supplier of natural gas and an important transit location for oil and gas flowing into Europe. Additionally, Ukraine holds around 10% of the world’s iron ore reserves and holds the largest deposits of uranium, manganese and titanium in Europe. Disruptions to the supplies of these key commodities because of the conflict along with potential sanctions on Russia are likely to continue pushing energy prices higher in the short term. West Texas Intermediate crude has jumped about $7 today to nearly $100 a barrel as of this writing. With the Consumer Price Index already running at 7.5% year-over-year in the U.S., higher energy prices will likely exacerbate the impacts of inflation on households globally and potentially slow the overall economy marginally.
Tuning out the noise and not initiating any drastic investment actions is the best approach for the following reasons:
Equity market corrections are normal and needed so that prices stay fair. Volatility is likely to continue in the shorter run, as traders continue to assess the Russia/Ukraine conflict along with a less friendly Federal Reserve given high levels of inflation. Historically, mid-term election years have been more volatile. For now, we think the impacts from the Russia/Ukraine conflict may lead to even higher short-term inflation, but are likely to have only modest impact on the U.S. and global economy. The U.S. economy is likely to remain robust in 2022, which should support corporate earnings and stock market valuations. Patience, balance and discipline continue to be key in 2022.
Chad Roope is Vice President, Chief Investment Officer at Sequoia Financial Group, LLC. Contact him at croope@sequoia-financial.com or visit www.sequoia-financial.com.
Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.
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