We invite you to watch our latest video, Market Volatility Amid Conflict in Ukraine. A full transcript of the video featuring Michael Joyce is below in italics.
Hi. This is Michael Joyce from Agili, Your Personal CFO. And today we’re about two weeks into Russia’s invasion of Ukraine. And, first of all, I want to say that certainly our hearts go out to the people of Ukraine. They’re really enduring hardships there and all our best to them.
Volatility in the Financial Markets
But also, we’ve experienced a great deal of uncertainty in the markets. And it can be quite disconcerting to have kind of this “drip, drip” of negative returns seemingly every day. The biggest impact of the war has been a rise in oil prices. Some of that was priced in prior to Russia’s invasion, but certainly we’ve seen more of that has occurred.
Inflation Concerns and More
And that adds commodities inflation to a picture where we already had quite worrisome inflation trends. And to be clear, higher inflation and higher interest rates that go with inflation are still my biggest short-term concern. But certainly, this does not help things, and it puts the Fed in a pretty difficult situation because they got behind the curve with inflation. So, they’re going to start this month raising short-term interest rates to combat inflation but they’re in a pretty tight spot as well – because they don’t want to raise rates so much that it hurts any economic recovery.
We’ve also seen since the invasion began that long-term rates have come down a little bit. And that shows that there’s still plenty of demand from foreign investors in US assets, whether it’s Treasury securities or other assets as somewhat of a safe haven right now.
Oil Price Increases
In terms of the increase in oil [prices], that is worrisome, but at some point, that will be over. Certainly, the supply-side is constrained, but also, we could see increases in supply. It is not in OPEC’s best interest to have demand destroyed. And also we’re starting to see a pick-up in domestic oil producers, particularly in some of the shale oil producers in Texas – where it’s becoming more profitable for them to start pumping some oil.
Stock Market In Correction Mode
Now, what does this mean for the markets? I mean, we’ve seen a pull-back in the markets and some of it has been very rational, I believe. But a lot of things have fallen, you know, there are some stocks that are down 40-50%, and overall, the stock market is in correction mode right now. The NASDAQ, which is a lot of big tech companies, is already in correction mode. The Russell 2000 index of small company stocks is in correction mode.
Future Market Trends
We’re not seeing opportunities like we did in the Spring and Summer of 2020 after the pandemic first hit. But there may be some opportunities that come up if we do fall back some more. But we are certainly on the lookout for a lot of opportunities at this time.
Overall, we see the Russian invasion as being a 30 to 60-day event for the markets. Now, I’m not saying it’s going to be over in 30-60 days; I don’t see it being over for quite a long time. Also, the sanctions are going to impact commodities prices for a long, long time. But in terms of a market response, you can probably expect about a 30 or 60-day timeframe. That doesn’t mean we don’t worry about other things short-term. As I said, inflation is still worrisome, but we’re not looking at a recession. Or if there is a recession, it could be a pretty shallow recession. Because there is still a lot of pent-up demand for goods and services.
And we have seen some positives. Certainly, the employment numbers have been looking much stronger, so that might auger some of the supply of labor issues, which still have a long way to go, but they’re getting a little bit better.
Prior to the Russian invasion, we saw in economic numbers that inventories were rising. And there’s still plenty of cash on the sidelines. And that can cushion some of the blow as well – and create some opportunity.
Agili’s Anniversary and Long-Term Investing
On March 1st, it was the 29th year since I started the firm. In March of 1993, the S&P 500 was at 420. And today, it’s 10 times higher than that. So, if you had invested $1 million with Agili in March of 1993, it would now be worth $10 million. Since then, we’ve had a dot-com bubble, a dot-com burst, probably the worst financial crisis since 1929, we saw a pandemic that really cratered demand when we shut down the economies. And the markets have proved to be resilient. But I think, more than anything, that shows the value of investing for the long-term. Your goals and objectives are mainly long-term goals and objectives and we are laser-focused on achieving your long-term goals and objectives, so we want to invest appropriately.