Ukrainian Soldiers looking for unexploded shells

THE WAR IN UKRAINE

HAS THE WAR IN UKRAINE UPENDED YOUR PORTFOLIO?

The impact of the war in Ukraine is more a humanitarian issue than an economic issue. However, during times of uncertainty, markets have a tendency to become unstable. We worked with our partners at Clark Capital Management Group, and their Senior Vice President, Glenn Dorsey CFA, CAIA, to present our clients a presentation on “Market Volatility and Crisis Events.” Below are some highlights from that conversation and our own research:

Key take-aways of our various research activities:

  • We are still in a strong, robust economy.
  • The overarching principle: Earnings, not geopolitical events, are what drive stock prices in the long run.
  • Everyone’s biggest fear, a third world war, is not expected based on a consensus of pundits.
  • Russia’s economy is less than half the size of California; they are the 11th largest economy. They are highly dependent on imports, so the current sanctions will have maximal impact.
  • Russia is the 3rd largest oil exporter, capping their export of oil could be a huge problem, in the short-term for Europe, along with an economic disaster for Russia 
  • Why are oil prices going up so quickly? Simply it is supply and demand.
  • OPEC has increased their production and likely more supply than has been announced will be arriving within the month. US Oil Production will increase as well. 
  • Geopolitical events are normal crisis events. There have been 10 major geopolitical events in the last 82 years, starting with the invasion of France in 1940. In each of these major events the S&P was up 2.6% on average within 3 months.
  • Stocks can help protect you against inflation as companies adjust their pricing to account for inflation. The Inflation rate is currently high. This is not just a reflection on stagnant supply lines or the war in Ukraine. Significant money was pushed into the economies across the developed world to prevent a recession during the Pandemic. It did that. Until this money gets pushed through the economy continue to expect higher than normal inflation. Remember that in the 1980s inflation was at 5.5% for most of the decade.
  • When it comes to stocks, what specific type is in most favor now? Value stocks are in demand as interest rates go up. Value stocks are based on a price that appears low relative to the company's financial performance. They largely work in tandem with growth stocks but a significant delta occurred between them in 2016. Value could outperform stocks for the next year at least.

Four key points to keep in mind right now:

  • People in Distribution mode are most impacted. All of our distribution clients keep at least one year’s worth of expenses in cash always to utilize during times of crisis. If they stop taking distributions from their investment accounts and use that cash it will allow their portfolios to recover.
  • Your plan should already be set up to anticipate times of crisis. Do you have your lifeboat prepared?
  • Never make major investment changes during times of upheaval. 
  • If you are in accumulation mode; Look at what equities you might have thought of buying but you felt were too expensive. They are on sale now.

In Summary: We can’t stop you from worrying but we can help you come up with a logical plan that works in all times.

This report is intended to be used for educational purposes only and does not constitute a solicitation to purchase any security or advisory services. Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. Kevin Best and Best Times Financial Planning are not affiliated with AES Nation, LLC. Commonwealth Financial Network® nor Best Times Financial do not provide legal or tax advice. You should consult a legal or tax professional regarding your individual situation. 

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