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How Does The Russia-Ukraine Situation Impact My Investments?

Russia has invaded Ukraine and stocks have been selling off. Oil is the only thing that has been consistently up, which is to be expected.

Oil is one of the biggest things that will affect everyone negatively because gas prices will be rising to prices we haven't seen in a long time.

The markets have been, and are currently trading in a volatile, randomized price movement with any good or bad news swaying the markets all over the place. This morning the S&P 500 and the tech heavy NASDAQ are heading in opposite directions. The question is, will either of them breakthrough the trend or are we headed for more volatility? And the answer is nobody has a clue and only time will tell.

Our risk signals are still negative, and we are sitting on a lot of cash, but even with about 60-70% cash for our noninstitutional clients there is still a lot of movement in our accounts. With a large cash position, we are setting up for some buying opportunities when the market turns positive. There are some great companies that have sunk down to where they are not only attractive growth stocks but are positioned to where they are classified as value stocks. New value stocks like NVIDIA (NVDA) and Advanced Microdevices (AMD) are two examples. Are we buying? No, not until our volatility indicators turns positive, but I have been building the list. Being patient is the only course of action at this point in time.

Do you remember the last time Russia invaded Ukraine in 2014? No worries, I don’t remember it either, and that’s how much of an impact it had on the markets. Is there current geopolitical risk? Yes, but in my opinion the primary concern here is how close Russia and China have become. That really concerns me.

You would think war would cause a very bearish market, and in the very short term it does, but this is counter to what you might think. Many investors logically believe that uncertainty from conflict means "down markets" until the conflict ends, but that is not what history tells us. The last five wars from Vietnam to the last time Russia invaded Ukraine, say otherwise. It is a classic case of sell the rumor and buy the news. After bullets started flying, the markets stabilized and moved higher in all five cases. 8/2/1964 Vietnam, 1/17/1991 Gulf War, 10/02/2001 Afghanistan war, 3/20/03 Iraq War, 3/20/03 Crimean Crises, = suggests buy the invasion.

While Ukraine will remain in the news, the longer term issue for markets has been, and still is, the Fed. And two key Fed-related questions will determine how long this bull market lives on: 1) How quickly will the Fed hike rates, 2) How dramatically will the Fed reduce its balance sheet? Barring a major back tracking of progress on Russia/Ukraine that increases the chances of a Russia vs. NATO conflict, the bottom line is that the Fed is the major issue for stocks going forward.

Positively, we will learn a lot more about this Fed over the next two weeks via: 1) Powell’s testimony this week, 2) The rate hike decision on March 16 (25 bps or 50 bps) 3) The “Dots” that show how many hikes we can expect this year (four or five?) and 4) Further clarity on balance sheet reduction (how quickly and are there asset sales?). Bottom line, it’s Fed tightening that will eventually end the rally and the economic expansion, not Russia/Ukraine. And any color on how long it will take for the Fed to do that is key, and that’s why the next few weeks are critical for all investors.

Given the still-uncertain environment, we continue to favor value over growth, low-volatility ETFs to insulate from increased random market volatility and cyclical sector exposure via financials and commodities. And we continue to generally view the market as in a 4,200ish to 4,600ish trading range, and we’d continue to use any rally towards 4,400ish to further lighten up and lower the general P/E of our portfolio. These are strategies that have worked so far in 2022, and we think they can continue to work going forward.

With computerized/algorithmic trading, investors must be very cautious of being out of the market. Once the big hedge funds and institutions' buy signals flip, you could see this market rip 10% in a few days time.

We have seen markets behave like this before, and while volatility is not fun, they do tend to work themselves out. One advantage we have is the fact that we have raised a lot of cash. When the market does flip to risk-on – and let me be crystal clear, IT WILL, we just don't know when – there will be some very attractive opportunities that will present themselves.

Ask yourself this question, if you bought Apple and Amazon last week do you think their stock price will be higher or lower in three years? Don't let short-term volatility overshadow your longer-term reality.

Stay positive and let’s spend some time hoping and pulling for the citizens of Ukraine.

Best regards,

Kurt S. Altrichter, CRPS®

Fiduciary Advisor | President

Direct: 952.828.5336

—Written 02.28.2022.


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