2022 February
Our latest variant of COVID-19, Omicron, is winding down, we are all viewing the future of the pandemic with a hopeful eye, and monetary policy is in for a major and long- overdue shift, the Feds have announced they will be raising interest rates as early as March. And if things haven’t been strange enough, let’s toss in a war in Europe.
We all watched and waited, hoping Russia would not invade Ukraine. As we saw the news last night and this morning, Russia has now invaded Ukraine. Just like many other tumultuous events, this has had an impact on markets. This is a prime example of “headline risk”, where the news adversely effects stock prices. As harsh as this may sound, this tragic event is unlikely to change the long-term outlook for corporate profits. As a result, the drop in equities can be viewed as a buying opportunity.
Last month our topic was inflation, this month we have included some charts on what historically happens in equity markets during times of rising interest rates. This is the monetary response to inflation. The Feds are expected to raise interest rates in March by .25BP.
For now we continue to stand by our beliefs that good quality stocks (equities) are the place to be during these turbulent times, and again we are staying ultra short in fixed income.
The Biden Administration has announced economic and financial sanctions against Russia. But other countries, like China and Germany, have strong interests in continuing to exchange freely with Russia.
Meanwhile, and for the time being, inflation is likely to be equities’ friend, not their foe. Companies with pricing power, commodities companies, and materials firms should do well.
In spite of these changes, we think equities are likely to rebound from recent strife and work their way higher this year. The bull market in stocks won’t last forever. But, for now, it isn’t at an end.