MFG March 2022 Comments
The invasion of the Ukraine by Russia seemed to catch the global stock and bond markets by surprise. I thought Russia would attack the two mostly Russian Friendly States in the South West near Crimea. I was mistaken.
The near term market affects should be: higher oil and gas prices, wheat and corn prices, and lower long term interest rates as global economies slow down because of this War. European Financials may suffer the most with Sanctions being placed on Russian assets.
Yet even before the Invasion of the Ukraine by Russia:
‘Over the past 12 months, the Russell 2000 Index is -11%, the Technology rich NASDAQ -1%.’ WSJ Feb 14, 2022.
The 'best case scenario' equities and bonds trade 'sideways' for a year or two in my opinion. IF the US Federal Reserve slowly raises rates and inflation quickly comes back under control.
‘Actual Earning for US Stock Index S&P 500 have climbed over 9% so far this year and forecasted Earnings have grown 7.5% for the year ahead, yet the index is down 6% for 2022.’ WSJ Feb 6, 2022 page B7 The 'worst case scenario' is equities and bonds tumble further and open up a good buying point after another 15%-25% loss. IF the US Federal Reserve is required to quickly raises rates to slow stubborn inflation, watch out below. “The last time the Federal Reserve go this far behind the curve was 2004. The Fed raised interest rates 17 times to ‘catch up’. JP Morgan on Bloomberg February 14, 2022. ‘The "Triple Deficits” have skyrocketed. This might dramatically slow future growth.’ Jeffrey Gundlach, DoubleLine Capital Feb 11, 2022.
'The Commerce Department said on Tuesday that the trade deficit increased 27.0% last year to an all-time high of $859.1 billion. The deficit was at $676.7 billion in 2020. Reuters Feb 8, 2022 'US Federal Government Deficit added $6T/year for 2 years.' PBS Dec 10, 2021 "US Federal Reserve Bank added $5T to its 'balance sheet' in 2 1/2 years.' St Louis Fed Feb 8, 2022.
The Russian Invasion with an already slowing global economy with climbing inflation should prove difficult for markets to advance in the near term.
When ‘shocks’ to the global markets occur, it is wise council to ‘stay the course’ on your long term Investment Plan. We are looking for good opportunities to show up in the mid-term.
Disclosure: The information and opinions presented here are those of Wade McFee and are for general information only and are not intended to provide specific advice or recommendations for any individual. The opinions, views and information expressed in this commentary are subject to change without notice based on market conditions and other factors. You should contact your investment representative, attorney, accountant or tax advisor with regard to your individual situation
Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results
Additional risks are associated with international investing, such as currency fluctuations, political and economic stability, and differences in accounting standards.
*The Russell 2000 is a stock market index measuring the performance of 2000 small capitalization stocks. It represents the 2000 smallest companies in the Russell 3000 Index, which in turn represents the 3000 largest companies in the U.S. Thus, the Russell 2000 is a barometer of small-cap stocks. Though small, the companies represented by the Russell 2000 are not the smallest of the small as they are not penny stocks. The Russell 2000 is weighted by the market capitalization of the stocks.
*The S&P 500 is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.