Parable’s Commentary
February 25, 2022
Contributors: Andrew Walker, Bruce Ensrud, Matt Stockman
THE SHORT STORY
Russia has officially invaded Ukraine, allegedly to protect would-be Russian citizens. But alternative motives are known, including the desire to stop the growth of NATO allies.
Discipline in maintaining a diverse portfolio and adequate liquidity has proven its worth thus far this year and these events only emphasized the need for that discipline.
At this time, we still believe long-term economic forces, like inflationary pressure and the federal reserve’s monetary policy, will have a greater impact on the market than the current humanitarian crisis in Ukraine. Moreover, we believe the strength of economic fundamentals still provides a robust backdrop for equity markets despite these additional risks.
Why is Russia invading Ukraine?
The official rationale from Russian publicity states that this invasion is to protect Russian citizens, specifically those in the self-proclaimed independent regions on the eastern border of Ukraine. Aside from the official Russian reasoning, it is presumed that Russian leaders maintain an interest in resurrecting the Soviet Union and regaining the global influence of decades ago. Russian leaders have long been wary of the eastward expansion of NATO and the preference from new Ukrainian leadership to join NATO is a red line.
How does this impact my portfolio?
Diversification and asset allocation have shown their value through this volatile start to the year. Changes in market conditions can change overnight, or even intra-day. Asset classes that led the way so far this year have been hit hardest by this news. Meanwhile, asset classes that have struggled year-to-date have fared well off of this news. Longer-term, we still believe our recent changes to target allocations are prudent adjustments.
For those of you that rely on your investments for income, this is a reminder for why we plan for income needs and set aside adequate liquidity in funds and strategies that are not correlated to, and in some cases inversely correlated to, the broader stock market. It is in times like these when we will draw upon those reserves to sustain your income needs.
How does this change our outlook?
Currently, it does not. While the current events are a destructive humanitarian crisis, at this point, it has limited global economic significance. Energy markets have, and are likely to continue to, feel the most drastic effects of these events. The stark reality, though, is that European nations rely on Russian oil and commodities and Russia relies on those European nations to purchase their oil and commodities. Both economies are intertwined and ultimately this dynamic should act as a ceiling towards significantly more escalation.
Global banks and the U.S. Federal Reserve are left in a difficult position and are forced to walk an even finer line. These events have the two-fold effect of adding to year-over-year inflation change with rising energy and commodity prices but may also be reason for the Fed to move at a slower pace amid growing uncertainty. Markets had largely expected and priced in rate increases in March to begin to combat growing inflationary pressures, but the market already seems to think a more modest approach to combating inflation is in the most likely response.
Finding hope and contentment
It can be challenging to stay grounded in hope in times like these. Here are 3 helpful reminders:
- Take media breaks. It’s ok to step away from the news cycle if you find yourself experiencing big emotions.
- Foster gratitude. Pause and take a moment to list 3 things you are grateful for. Expressing our gratitude can have a scientifically measurable effect on our well-being and can lead to increased strength when facing diversity, improved physical health, and more.
- Look for connection. Near or far, try to find opportunities to be in community with others. It could be volunteering, donating to causes you care about, or simply reaching out to be present and to process with someone. Hope most often emerges in the company of others.
We at Parable are grateful for your continued confidence and trust. Most of all, thank you for continuing to share your gifts and abilities in the world around you.
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