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.
Disclosure
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any company names noted herein are for educational purposes only.
All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards.
Investing in securities in emerging markets involves special risks due to specific factors such as increased volatility, currency fluctuations and differences in auditing and other financial standards. Securities in emerging markets are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments.
An index is a statistical measure of change in an economy or a securities market. In the case of financial markets, an index is an imaginary portfolio of securities representing a particular market or a portion of it. Each index has its own calculation methodology and is usually expressed in terms of a change from a base value. Thus, the percentage change is more important than the actual numeric value. An investment cannot be made directly into an index.
Investing in fixed income securities involves credit and interest rate risk. When interest rates rise, bond prices generally fall. Investing in commodities may involve greater volatility and is not suitable for all investors. Investing in a non-diversified fund that concentrates holdings into fewer securities or industries involves greater risk than investing in a more diversified fund. The equity securities of small companies may not be traded as often as equity securities of large companies so they may be difficult or impossible to sell. Neither diversification nor asset allocation assure a profit or protect against a loss in declining markets. Past performance is not an indicator of future results.
Financial Planning offered through Reason Financial, a state Registered Investment Advisor. Investment advice offered through Merit Financial Group, LLC an SEC Registered Investment Advisor. Merit Financial Group and Reason Financial are separate entities. Tax related services offered through Reason Tax Group. Reason Tax Group is a separate legal entity and not affiliated with Merit Financial Group, LLC. Sean P. Storck CA Insurance Lic#OF25995 and Steven W. Pollock CA Insurance Lic#OE98073
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