Quick Take on Russia-Ukraine

The situation between Russia and Ukraine is evolving rapidly. After gathering on the border with Ukraine, Russia has now started a broader invasion of the country. Initially Russian troops moved into disputed areas in the Donbas region, but Russian strikes in other parts of Ukraine are now underway.

In addition to the obvious humanitarian concerns, this conflict will have some impact to economies and markets across the globe. The good news is that our direct exposure to Russia and Ukraine is extremely limited. Russia only makes up about 2% of the MSCI Emerging Market Index and Ukraine makes up an even smaller percentage. We expect the United States and European allies to impose further sanctions on Russia which could very well lead to retaliatory measures from Moscow. While Russia’s overall economic impact on the world is relatively small, they do have influence in the energy markets. Recent developments have already pushed energy prices higher and uncertainty about Russia’s reaction to western sanctions is the main driver of the current market volatility. Europe is more exposed to the negative consequences of any retaliatory measures taken by Russia than the United States. We have an existing overweight to US equities with underweight exposure to Europe and this positioning will continue.

Uncertainty drives market volatility and we could see continued volatility as the situation in Ukraine develops. However, it’s important to remember that US corporate earnings have been strong, with 77% of S&P 500 companies exceeding Q4 earnings expectations. Our domestic labor market is healthy as well with job gains remaining persistent despite the Omicron variant’s surge at the end of 2021 and beginning of this year. We view the recent disruption caused by Russia’s invasion of Ukraine as temporary, with limited domestic impacts.

We will continue to monitor the situation closely and will make adjustments if necessary to navigate the current environment. It’s important to remember that your investment plan has been crafted to meet your goals, with the understanding that there would be challenges along the way.

Please reach out to us if you have additional questions.  

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