By Morgan Christen
CFA, CFP, CDFA, CEO and CIO
Ivan the Terrible, according to Wikipedia, was the first Moscow ruler born after its independence and was said to be prone to paranoia, rage, and episodic outbreaks of mental instability.
Hmm, sounds like a current ruler in Moscow.
The stock market started the year concerned with the Fed and what they would be doing with interest rates, now attention has turned to Vladimir the Terrible.
Geopolitical events happen, but they generally do not continue to wreak havoc on markets. They tend to hit the markets over a few-week period, then fade. The chart below shows wars and conflicts are one constant throughout the years.
For markets and investors, there is something that is of far more concern than Russia and that is inflation and the Fed’s reaction.
We will not join the fray in guessing when and how many interest policy changes will occur, other than to say that they will happen.
Frankly, it is time. Savers should be able to get some earnings on a bank account and yes there is inflation.
In a zero-interest rate world, asset values can essentially be infinite as the discounted cash flows are brought to the present; no discount rate equals large values.
It is no surprise that companies with less current earnings and more speculative outcomes were hit the hardest by the new world of (slightly) higher interest rates.
Higher rates (even aggressive increases) generally do not spell the end of market runs.
What is our greatest concern? Whether or not the Fed will overshoot. If the Fed were to over-tighten, that could send the U.S. into a recession.
Recessions are bad for markets. Recessions lead to bear markets; we do not want that, and I do not think the Fed wants it either.
The current geopolitical events may help the Fed, as calls for aggressive policy rate decisions have waned.
I do not want to minimize the situation in Ukraine, but merely add an investment perspective. What has transpired is tragic and our thoughts are with the Ukrainian people and their government. The coordinated international response has been inspiring, as even China has not supported Russia.
On the investment front, we made changes to your accounts earlier this year to account for changes in future rates. We are watching what is going on with the Fed and feel the current situation in Ukraine will temper the calls for many and larger policy changes.
If you have any questions or would like to respond to this market note, please reply. We enjoy receiving your feedback. As always, your Spinnaker Team is here to assist you.
The information contained herein is based on internal research derived from various sources and does not purport to be statements of all material facts relating to the securities mentioned. The information contained herein, while not guaranteed as to the accuracy or completeness, has been obtained from sources we believe to be reliable. Opinions expressed herein are subject to change without notice.