Russia/Ukraine Conflict

    | February 24, 2022


    Following Russia’s attack on Ukraine, stocks began to drop on Thursday in a volatile trading session. Bond yields started notably lower, and finished the day down slightly, resulting in a small gain for the bond market. Stocks were down roughly -2.5% at the open and were able to grind higher finishing the day on a positive note, with the S&P up +1.5%. International shares were not as fortunate, with stocks in Europe down nearly -4% while the Moscow Exchange registered a -33% decline.

    Not knowing the duration or magnitude of the conflict, nor the impact from sanctions being levied, is driving volatility across markets. The unexpected rally in stocks today may be an indication of some traders predicting the conflict will be short lived. As we consider the potential impact of this conflict, based on what we know today, we would expect the impact for U.S. investors to be fairly contained. Russia and Ukraine are large suppliers or natural resources such as oil, gas, nickel, corn, and wheat. Any supply/demand imbalances created by the conflict will lead toward higher prices and ultimately added inflationary pressures. At this point, outside of some modest headwinds to economic growth stemming from inflation and softer economic conditions in Europe, we don’t see the conflict derailing the U.S. economy.

    Market downturns are never fun to go through, largely because of the uncertainty. Its only in hindsight that we know when they end and how far down markets ultimately go. But investing entails taking risk with the goal of generating a return on capital over the long-term, knowing there will be episodes where prices go down instead of up. A positive that has come out of the market thus far in 2022 is that we’ve seen a normalization in valuations after prices in some segments of the market had become elevated. We’ve seen this in stocks with heightened growth expectations that more recently have traded down toward more reasonable prices. Alternatively, we’ve also seen commodities do well this year as their prices more adequately reflect outsized levels of inflation. There may still be some adjustments to go on the pricing of individual assets, however today we see fewer instances of assets being priced to perfection and a greater awareness for risk.

    As we look forward, we must recognize that a wide range of outcomes exists, both geopolitically and economically. We continually evaluate investment opportunities versus a range of outcomes. However, based on how we perceive market risks today, we don’t see the current events changing our long-term investment perspective. A bias toward domestic equities remains prudent especially considering rising geopolitical tensions. We continue to find emerging markets, of which Russia is part of, attractive as demographics remain favorable and some countries may benefit from global supply chains shifting away from Russia. Lastly, days like today validate the value of diversification where bonds help to preserve capital and diversifying assets, such as commodities, help in augmenting returns.



    All opinions expressed in this article are for general informational purposes and constitute the judgment of the author(s) as of the date of the report. These opinions are subject to change without notice and are not intended to provide specific advice or recommendations for any individual or on any specific security. The material has been gathered from sources believed to be reliable, however Telemus Capital cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. Investment decisions should always be made based on the client's specific financial needs, goals and objectives, time horizon and risk tolerance. Current and future portfolio holdings are subject to risk. Risks may include interest-rate risk, market risk, inflation risk, deflation risk, currency risk, reinvestment risk, business risk, liquidity risk, financial risk, and cybersecurity risk. These risks are more fully described in Telemus Capital's Firm Brochure (Part 2A of Form ADV), which is available upon request. Telemus Capital does not guarantee the results of any investments. Investment, insurance and annuity products are not FDIC insured, are not bank guaranteed, and may lose value.

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    Matt Dmytryszyn

    Matt joined the Telemus team in 2018. As Chief Investment Officer, he leads the firms the investment process and research effort. Matt has experience as an equity analyst and portfolio manager and has advised corporate pension plans on their manager selection. He’s been quoted in Money Magazine and Barron’s.

    Matt Dmytryszyn
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