Tensions are high between Russia and Ukraine right now. U.S. markets have swung down and back up as the two sides figure out how far they want to take this.
It’s enough to make any investor’s head spin. But is it something we need to worry about?
Research analyst Matt Clark and I answer that question (and highlight some other market-moving events) in this week’s Investing With Charles.
Check out some of the highlights from my conversation with Matt below.
Should We Worry About Russia and Ukraine?
Matt: As a smart investor, how much do you pay attention to geopolitics? What should you be doing? A lot of people are wondering … with the markets down, should I sell? Should I hold? Should I buy more? What should I do?
Charles Sizemore: Well, I would start by saying that the Russia deal, for the most part, is a distraction. Ukraine is not, in any way, shape or form, integral to our supply chains. It honestly doesn’t matter. The possibility that this snowballs into a World War III, as people have suggested, is ludicrous.
At the end of the day, there’s no public appetite for war, and there’s no real interest in it. The U.S. would be going at it alone because Europe’s made it very clear they’re not getting involved. So it’s much ado about nothing.
3 Main Issues for U.S. Investors
Now, does that mean everything is rosy? No. The issues facing the market right now are threefold. It’s the Federal Reserve, it’s inflation (those two go hand-in-hand) and it’s earnings.
We all know the story with inflation right now. It’s been ripping at multidecade highs, prompting the Fed to be more aggressive in its glide path for raising rates and its plans for shrinking its balance sheet. (Remember, the Fed was buying $120 billion a month in bonds.) The central bank has shrunk that to almost zero now, but they have not started dumping their existing inventory onto the market. They haven’t started to let things run off yet.
If inflation starts to cool, by sometime this summer perhaps, you’re going to see the Fed back off a little. But if inflation remains stubbornly high, they’re just going full bore.
Earnings is another wildcard. Quarterly reports have been fantastic for a while now. A lot of stimulus juiced demand during the pandemic. This caused the earnings of a broad swath of the market to be high. We pulled that spending into the present, which means that future spending in those areas should be less. As the market digests that, as companies start to come out with their earnings forecasts, that will have a big impact on what happens in the market next.
If strong earnings continue, even with Fed headwinds, the market might stumble forward. If we have these Fed headwinds and earnings are look weak, then that’s going to be a drag on the market. Don’t take your eye off the ball here.
Worried About a Crash? Look to the Past
Matt: Now, what do you say to a recent Goldman Sachs note that suggested that if there is some sort of movement into Ukraine by Russia, we could see a stronger drop in the market than we saw in 2014 when Russia annexed Crimea.
Charles: If you think back to 2014, do you even remember that market pullback? I don’t.
I would have to look back at a stock chart to even remember it happened. I remember the March 2020 sell-off, of course. I remember the fourth quarter, 2018 sell-off. I remember the flash crash of 2010. I remember, of course, the 2008 meltdown. All of these were significant market-moving events.
Whatever happened during the last Crimea invasion? I don’t remember there being a market impact. That tells you something about how insignificant it was. Now, will this time be different? Maybe, if the West somehow decides that this is the line in the sand, we’re drawing it. Do you see that happening, though?
The Biden administration just pulled out of Afghanistan. We’ve made it clear that we’ve stretched ourselves a little too thin with military engagements. We’re disengaging from various parts of the world that are not strategic. We’re not going to go all-in on Ukraine.
Biden’s made it very clear: He’s right-sizing our foreign policy. He’s scaling back certain aspects that he considers non-core, non-critical. It’s hard to imagine Ukraine being critical if Afghanistan is not.
For more of my conversation with Matt, click here to continue watching Investing With Charles.
Where to Find Us
Coming up this week, Matt will have more on The Bull & The Bear podcast, so stay tuned. Don’t forget to check out our Ask Adam Anything video series, where chief investment strategist Adam O’Dell answers your questions.
You can also catch Matt every week on his Marijuana Market Update. If you are into cannabis investing, you don’t want to miss Matt’s weekly insights.
Remember, you can email my team and me at Feedback@MoneyandMarkets.com — or leave a comment on YouTube. We love to hear from you! We may even feature your question or comment in a future edition of Investing With Charles.
To safe profits,
Charles Sizemore Co-Editor, Green Zone Fortunes
Charles Sizemore is the co-editor of Green Zone Fortunes and specializes in income and retirement topics. He is also a frequent guest on CNBC, Bloomberg and Fox Business.