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Investment Insights, LLC

Where to Now?

Markets hate uncertainty.  Uncertainty breeds volatility.  And, as we’ve experienced with the S&P 500 down over 10% year-to-date (as of the time of this writing), the volatility has accelerated as the Ukraine-Russia conflict unfolds.  

Well, Russia has now invaded Ukraine.  That much is certain.  The new uncertainty is to what end.  

So, what does that mean to the markets?

For starters, the price of oil and other commodities may rise, and market volatility may continue.  If there’s trouble on the horizon, markets tend to react.  And, at times, react quickly reflecting the fear – or greed – being felt by investors. 

The uncertainty over the future of Ukraine is real.  From an investor’s perspective though, that fear has probably been priced into the markets to a large extent given that tensions have been brewing for some time now.  The focus now shifts to the potential end result as world leaders urge diplomacy, sanctions, and a peaceful resolution.

Whether or not additional economic sanctions will squelch Russia’s aggression remains to be seen.  Thus far, they have not.  Such sanctions are reactionary and require time to take effect.  So, how do you get tough on an autocratic nuclear power?  You can’t.  At least not militarily. 

Economic sanctions, however, remain an effective tool.  It’s the old “business over bombs” adage.  And a strategy that the US and NATO allies have every intent of pursuing.    

Russia is the world’s 11th largest economy.  It remains highly sensitive to swings in commodity prices and maintaining exports of its vast natural resources.  I’m not a political scientist or international relations expert, but I’d venture to guess Russia is making a calculated bet that Europe will stop short of the toughest sanctions – cutting off oil and natural gas exports.  Especially in these final weeks of winter.  

There is an eventual political, and economic, price to pay though with these economic sanctions.  In large part, Russia can’t afford to sustain escalating and protracted economic sanctions imposed by the world at large.  It’s one thing for Russia to invade Ukraine.  It’s another to occupy and hold it indefinitely. 

So, what does all this mean as investors?

Well, it’s never a good idea to sell in a panic.  And although it may not feel good in the moment, this too shall pass. 

Domestically, the US continues its adaptive recovery as the pandemic wanes.  Unemployment claims for the last week came in less than expected and overall unemployment remains historically low.  The tightening labor market boosts wage growth, contributing to high inflation, but overall job security helps to sustain consumer spending and economic expansion. 

Globally, however, tensions and market volatility remain high.  This requires a watchful eye and one that we’ll keep as this crisis unfolds.

This is why we plan.  This is why we diversify. 

To stay the course and weather the storm.

Kevin Ihrke is a CERTIFIED FINANCIAL PLANNER™ professional.  His firm, Investment Insights LLC is located at 508 N 2nd Street, Suite 203, Fairfield, IA 52556. Securities offered through, Cambridge Investment Research, Inc, a Broker/ Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Investment Insights LLC and Cambridge are not affiliated. Comments and questions can be sent to kevn.ihrke@emailsri.com. These are the opinions of Kevin Ihrke and not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice. Investing involves risk. Depending on the types of investments, there may be varying degrees of risk. Investors should be prepared to bear loss, including total loss of principal. Past performance is no guarantee of future results. Indices mentioned are unmanaged and cannot be invested in directly.

Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the CFP® certification mark, the CERTIFIED FINANCIAL PLANNER™ certification mark, and the CFP® certification mark (with plaque design) logo in the United States, which it authorizes use of by individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

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