“The real problem is not finding a good fund manager, it's finding the right time horizon for your investing and what your temperament is for volatility.”
~ Peter Lynch”
Market volatility is back in 2022. Trying to manage your investments in a crisis, with extreme market volatility, can be mind- boggling. It’s about as difficult as keeping up with the news flow which we’re all inundated with.
In any crisis, ‘playing it safe’ to avoid losing your money can seem like the only rational strategy. However, in the past 60 years, we’ve seen repeating patterns of crises. Despite these crises, the market has been resilient.
See chart #1 below, history shows that long-term investors who stayed the course through crises and didn’t lose sight of their financial goals have been rewarded.
Whether the markets have reacted to geopolitical risk, fears of inflation, or even a pandemic, time has shown that the best strategy is to stay diversified and invested. It’s impossible to forecast how the current situation will pan out, and our strongest hopes are for a fast, peaceful resolution. I have yet to meet the investor who can successfully decide both when to exit the market and when to get back in. As history has proven, rebounds can come as quickly and unexpectedly as the sell-offs they follow.
See chart #2 below, illustrating how missing even a few market days can impact overall returns. Over the past 20 years, the S&P 500 has grown at an annualized rate of 7.3%. However, removing only the five best trading days over that 20-year period would bring the index’s total growth down to 4.9%, and missing the 20 best trading days pulls its return to only 0.6%.
A key aspect of maintaining your portfolio through any market is having a clear understanding of your tolerance for market movements. During these uncertain times, I encourage all investors to maintain perspective and focus on the long term. It’s vitally important to stay focused on the investment goals that you originally set. If those goals haven't changed, your investment approaches shouldn't either – even in times like these.
Using history as a guide, the inevitable market valleys give way to higher peaks. Staying focused on goals and maintaining a disciplined approach are key.
Call me with questions.
Raymond James: Pressure Points of the Russia-Ukraine Crisis
Raymond James Webinar: The State of Ukraine, the Fed and the Union
3 views on the Russia-Ukraine conflict
Capital Group, March 3rd, 2022
Russian attack brings long-sought European unity
Talha Khan, political economist
There is no shortage of tragic events unfolding in Ukraine — from the loss of life to the shattering of international peace accords to the economic damage suffered on all sides of the conflict. But if there is a silver lining to this catastrophe, it may be found among the growing chorus of nations joining to oppose Vladimir Putin’s military aggression.
Russia’s invasion of Ukraine has managed to do in one week what many observers of Europe have agonized over for decades: It has singularly united the European Union. Along with the United States and NATO, Western democracies haven’t been this closely aligned in purpose since the aftermath of the September 11 terrorist attacks.
The most profound shift happened over the weekend with new German Chancellor Olaf Scholz signaling radical changes in nearly every sacred pillar of German foreign policy. Among other extraordinary measures, Scholz announced a one-time increase of
€100 billion in defense spending and committed to allocate more than 2% of Germany’s gross domestic product to annual defense spending.
Other European nations have signaled their resolve in various ways, including shipping weapons to Ukraine, accepting Ukrainian refugees and looking for alternatives to Russian oil and gas supplies. Russia is a major trading partner for Europe, and it remains to be seen whether the continent can forego key Russian commodities given there are no easy substitutes.
Will this new-found European unity persevere once the Russian threat has passed? I believe it will. It must endure if the EU expects to thrive in a brave new world that has shifted from 30 years of relative peace and cooperation to populist politics, heightened trade tensions and outright military conflict.
Geopolitics has returned as a major driver of world events. Political leaders and investors alike have no choice but to confront that reality.
The U.S. economy, Fed rate hikes and the “R” word
Darrell Spence, U.S. economist
While the threat to Europe’s economy is far greater, the U.S. economy probably won’t emerge from this conflict unscathed. Rising energy prices were a problem prior to the invasion of Ukraine and now are moving higher as global markets contemplate a world without Russia’s vast oil and gas supplies.
That could very well lead to higher U.S. inflation, which is already running hot. Price increases among food, energy, and other goods and services essentially rob U.S. consumers of their purchasing power. That can put a damper on consumer spending, which accounts for about 70% of U.S. economic activity.
Could it be bad enough to push the U.S. into recession? I’d put the chances at 25% to 30% by late 2022 or early 2023. The R word is a much bigger issue for Europe, of course, because of its proximity to the crisis and dependence on Russian trade, particularly in the energy sector. Europe is more exposed than the U.S., but both economies could falter if the conflict isn’t resolved soon.
With the U.S. Federal Reserve poised to raise interest rates later this month, some market participants are wondering if the Ukraine crisis might give Fed officials a reason to keep rates near zero. Stocks rallied late last week partly on this sentiment, but I don’t see it happening.
The Fed is in a tough spot. With U.S. inflation hitting a 40-year high of 7.5% in January — and a war-related energy shock potentially pushing it even higher — Fed officials have no choice in my view but to raise rates at their March 15-16 meeting. In an ideal world, they could pause. But at this level of inflation, I don’t believe they have the luxury. That said, the conflict probably means a hike of 50 basis points is off the table. Rather, a more moderate 25 basis point increase is likely.
Fed officials have clearly telegraphed their intention to tighten monetary policy. Investors should expect them to do so.
Stay focused on long-term investment goals
Jody Jonsson, portfolio manager
The invasion of Ukraine is a shock to the system. It represents an overthrow of the world order we have known for the last 30 years. Markets had a hard time anticipating how this would play out and couldn’t imagine what actually happened. These events further add to the negative investor sentiment present due to rising energy prices, higher inflation and signs of slowing global economic growth.
Since the beginning of the year, we’ve been in an environment where price-to-earnings multiples are experiencing a significant correction, especially at the frothiest ends of the market. If the crisis in Ukraine eventually causes central banks to refrain from raising interest rates, that could be positive for some companies with solid earnings growth that are reasonably valued, especially if oil is not an input for them. With oil prices above $100 a barrel now, that will be a major headwind for energy-dependent companies.
I’m also growing more concerned about the banking sector, particularly European banks. The economic outlook for Europe has
deteriorated significantly in recent days. I think that creates more credit risk and raises the question of whether we are heading toward a recession later this year or next.
t’s important to remember, however, that long-term investors can still find opportunity in the midst of chaos — be it war, inflation, or recession. There are still many companies that are growing and thriving and innovating, so that’s where I focus most of my time and energy.
My primary message for investors is to stay committed to your long-term investment goals. Don’t be disoriented by moments of crisis. Remember that markets are resilient and have powered through many challenges. Now is the time to evaluate your portfolio, stay focused on your path and try not to let external events derail your objectives.
Here is a link to the full article: 3 views on the Russia-Ukraine conflict
*Raymond James & Associates, Inc, member New York Stock Exchange/SIPC
*The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material, and is not a recommendation. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.
*Views expressed are the current opinion of the author, but not necessarily those of Raymond James. The author’s opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security. Information contained in this report was received from sources believed to be reliable, but accuracy is not guaranteed.
*There is no assurance any investment strategy will be successful. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. Past performance may not be indicative of future results. International investing involves additional risks such as currency fluctuations, differing financial accounting standards, and possible political and economic instability. These risks are greater in emerging markets. Small- and mid-cap securities generally involve greater risks and are not suitable for all investors. Asset allocation and diversification do not guarantee a profit nor protect against a loss. Individual investor’s results will vary.
*Gross Domestic Product (GDP) is the annual market value of all goods and services produced domestically by the U.S. Past performances are not indicative of future results. Investing always involves risk and you may incur a profit or loss. No investment strategy can guarantee success.
*This information contains forward-looking statements about various economic trends and strategies. You are cautioned that such forward-looking statements are subject to significant business, economic and competitive uncertainties and actual results could be materially different. There are no guarantees associated with any forecast and the opinions stated here are subject to change at any time and are the opinion of the individual strategist. Data comes from the following sources: Census Bureau, Bureau of Labor Statistics, Bureau of Economic Analysis, the Federal Reserve Board, and Haver Analytics. Data is taken from sources generally believed to be reliable but no guarantee is given to its accuracy.
*Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize, or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any web site or the collection or use of information regarding any web site’s users and or/members.
*Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and Federally registered CFP (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s Initial and ongoing certification requirements.
*The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market.