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As the World Turns
from Eric Clark
In the almost 3 months since I penned my commentary on the Russian invasion of Ukraine, world and market events have continued to swirl. Some changed, others not. Some familiar, others not so much. What remains prevalent, in my opinion, is a level of anxiety tied to the uncertainty all around us. Anxiety that for some, barely registers a concern as they plow through their daily lives and activities. But for others, a level of anxiety that might lead to an inability to act. A preference for the status quo, and the sense of control this static state of affairs might provide. If I’ve learned anything over the years, it’s that if you remain anchored and reluctant to embrace your surroundings, you might find yourself left behind or irrelevant in ways you could regret. That’s not to say we should follow the herd, but sometimes it can be helpful to be mindful of the situation and reflect on how to effectively navigate. Being mindful and reflective seem appropriate when viewing the current state of world affairs.
Ukraine
With history as a guide, it is sometimes difficult to fathom how men like Vladimir Putin remain powerful figures on the world stage. Geopolitical disruptions created by his decision to invade Ukraine have occurred throughout history. In more modern times, events such as this one have had short and long-term economic and world alliance impacts. I expect this time to be no different as we see changes already emerging around energy, food, and shifting global pacts/alliances. Look for the conflict to add to already high inflation through increased pressure on energy and grain supplies and their distribution.
The Fed
With a ½% increase in place and a similar increase later this summer likely, the Fed has accelerated their efforts to cool inflation which continues to run at record highs. There will be significant debate around future interest rate hikes and their frequency. Readers should assume there will be those who believe the Fed should do more and those who believe the Fed should do less. What the Fed can be counted on doing is reading and interpreting the economic data to the best of their ability. Fed Governors will debate and ultimately arrive at a decision to raise or hold steady on interest rates. The markets will draw their own conclusions on what future rate increases and other “real time” economic factors might mean. Volatility will persist until markets are convinced, as much as they can be, that positive economic growth is sustainable, supported by solid employment and strong corporate earnings.
The Economy and Markets[1]
Recent market declines briefly tipped the S&P 500 index into bear market territory on Friday, May 20th, for the first time since 2020. Historical data indicate that not all bear markets come with recessions. Of the twelve bear markets since WWII, only eight coincided with a recession. Some analysts believe this bear market is likely to be short and relatively shallow, though large price swings may persist until the market finds clarity on rates, inflation, and growth. Financial imbalances, a key driver of recent recessions, are broadly absent today. The private sector— banks, businesses, and consumers—is well-positioned to absorb a more challenging growth and inflation mix given sustained balance sheet strength and excess liquidity, lessening potential effects in a downturn.
Your Portfolios
For those of you who add money to your portfolios on a regular basis, you are experienced in what is called dollar cost averaging. All of our clients should be familiar with the regular rebalancing of the individual accounts that combine to make up their total investment portfolio. These two basic investing ideas: dollar-cost averaging (putting money to work automatically every month or quarter) and rebalancing (selling some of your winners and buying some of your losers) is a close cousin to Michael Edelson’s technique of value averaging.[2] The latter requires additional buying/selling at predetermined price points. However, we believe applying the basic dollar-cost-averaging and rebalancing techniques all while keeping a long-term investment horizon in mind, adds sufficient consistency and discipline when navigating volatile markets.
To conclude, we are very aware of the current geopolitical and economic surroundings. We are always mindful of the situation and spend significant time reflecting on how to effectively navigate. We do this through diligent observation and the rebalancing of your portfolios in the context of your allocation strategies. If the current volatility and geopolitical disruption, have you overly concerned, please let us know. We are always available to discuss any questions related to your portfolio or other financial circumstances. Thank you for your continued trust in our efforts to manage your financial situation. We are grateful for the opportunity and endeavor to always meet and exceed your expectations.
[1] Sourced from Goldman Sachs Asset Management Strategic Advisory Solutions; Market Minute May 23, 2022
[2] The Intelligent Investor, How to Face Up to Buying the Dips; Wall Street Journal, May 20, 2022 |
