I have been reluctant to write a blog about Russia’s invasion of Ukraine and how it might impact the financial markets. It is difficult to write about this while the people of Ukraine are fighting for their lives and their country. In troubling times such as these, it is critical that investors divorce themselves from the emotional situation and remain pragmatic in their investment approach. As your investment advisor, I will share some of my thoughts.

It has now been three weeks since Russia initiated its war on Ukraine. How this will end, and what the long-term ramifications will be, remains to be seen. With a nuclear power involved and an interconnected global economy, there really are no good parallels in history from which to draw to know what to expect. The war will undoubtedly weigh on the global economy due to the spike in energy prices. This will further feed inflation and the cost of goods which in turn will negatively impact consumer spending and corporate profits. The Federal Reserve’s balancing act of scaling back extreme stimulus measures to fend off inflation gets more complex when economic growth is expected to slow.

All that aside, the worst bear markets in stocks tend to coincide with recessions. And at this time, the most reliable predictor of recessions (the yield curve) is not forecasting a recession. I thus believe it would be a mistake for investors to get too conservative in this environment especially with investor pessimism running high. It may very well be that the economic impact of Russia’s war is already factored into stock prices. While the volatility can be an emotional roller coaster, investors need to recognize that their emotions can be their worst enemy when it comes to investing. Keep in mind that volatility can also create opportunities.

Glenn S. Rank, CIMA®

Certified Investment Management Analyst®

President