AVP Wealth Portfolio Manager | Johnson Financial Group
As Assistant Vice President, Wealth Portfolio Manager, Kelsey works with clients to achieve their unique goals and objectives.
4 minute read time
Markets have consistently declined over the past few weeks as a result of the Russia and Ukraine conflict. However, major equity indexes posted positive returns on Thursday and Friday of last week.
Specifically, markets largely unwound the initial reaction of Russia’s invasion, safe haven currencies lost ground, and Treasury yields rose. The Dow Jones Industrial average finished with its best day of the year after Russian leadership agreed to meet with Ukrainian officials, suggesting that Putin is open to negotiations.
However, new developments will likely lead to continued uncertainty and volatility will continue as the market digests new risks that develop. It is natural to feel nervous during periods of uncertainty and chaos as we watch from the sidelines. Investors sometimes find it hard to stand idle. However, we must be reminded that good portfolios are built to withstand unpredictability and markets are resilient over the long term.
Heading in to 2022, our outlook included continued positive growth, though we also recognized risk-inducing factors including geopolitics, pandemic concerns, earnings growth, and Fed policy. We build these risks into our outlook when constructing portfolios. While geopolitical risks have taken center stage over the past few weeks, some of our other risk factors have taken a backseat and are readjusting.
The Fed is on pace for its first rate-hike in March. A risk to our outlook was that the Fed would hike over-aggressively in response to growth and inflation, which would squeeze risk assets. Over the past few days, the probability of a 0.50% rate hike has dwindled down to about a 25% chance from a high of around 80%, and the number of anticipated rate hikes this year has also been reduced.
Earnings growth was also strong for the fourth quarter of 2021. Stocks are down this year due to lower price to earnings ratios—not poor earnings. P/E led bear markets tend to see V-shaped rebounds.
Lastly, consumer spending rose 1.5% in January despite the Omicron variant, a sign that inflation is largely supply-chain driven rather than demand-driven, but we will continue to monitor whether higher oil prices affect spending going forward.
On an ongoing basis, we monitor how these risk factors play off each other and seek to make changes within portfolios when opportunities arise.
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