Hopefully 2022 has gotten off to a good start for everyone. We wanted to send a brief update on markets, portfolios and what we are doing in light of the Russia-Ukraine situation.
Obviously, an invasion of a sovereign nation is never a good thing and we have seen the markets decline this week as a result. As a reminder, we entered the year having begun a rotation to more defensive equities with a substantial amount of cash, hardly any international equity exposure and a solid position in commodities. We have maintained that allocation and recently raised some additional cash by taking profits as Putin made his announcement and began military action on Monday. In addition to the development of this situation, we are waiting on the Fed meeting in March to help guide the path of rates and rate increases. However, prior to this week, the stock market was already pricing in some substantial rate increases (approximately 6 to 7 this year). Add these two unknowns to high inflation and you have a situation where stock markets are volatile and lower.
So, where do we go from here? We really need to see how the Russia situation plays out. At this point, the response from the West has been that of sanctions to inflict economic pain on Russia as a result of their actions. The final depth and severity of those sanctions will determine the ultimate impact this has on the global economy. If this ends with a Russian controlled Ukraine (or puppet government), prolonged sanctions from the West and no military involvement from NATO, the US or China then the market will settle down and the economy should continue to move forward and grow. The underlying fundamentals of the economy are still in good shape, even pricing in multiple rate hikes. In the short run though we may see some more inflation via higher gas and energy prices as well as uncertainty about how far Putin will take this. In this base case, we will look for opportunities to redeploy the cash in areas that we think have upside from current levels.
If Putin decides to move into places other than Ukraine or we have military conflict involving NATO then all bets are off and we will be much more defensive in protecting assets. To be clear, this is not what we expect to happen.
In closing, while this is a terrible situation, it should not derail the global economic expansion if it spreads no further than Ukraine and the market should recover. We are positioned defensively and that has protected portfolios. We have a plan should the situation improve or deteriorate. As always, we appreciate your trust and confidence. If you want to discuss anything further please don’t hesitate to call.
Sincerely,
Bobby
Robert J. Phillips, CFP®
President
Greater Midwest Financial Group, LLC
3222 Rice Street
St. Paul, MN 55126-3047
Phone: (651) 490-9790 Fax: (651) 490-9788
robert.phillips@greater-midwest.com
Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Kestra IS and Kestra AS are not affiliated with Greater Midwest Financial Group, LLC or Five Star Professional. Investor Disclosures: https://bit.ly/KF-Disclosures.
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