The Markets and Ukraine (3/18/2022)
Since February 24th, the war in Ukraine has shown us how violent Putin and Russia can really be to their neighbor. This violence has had an impact on the citizens of Ukraine as well as most western countries. From an investment perspective the war has added more uncertainty, as the price of oil and other commodities have gone up, inflation has risen further, and worker shortages and supply chain issues weigh heavily on markets.
When the price of oil dropped below $100 per barrel, there was a positive response from the markets. Recent outbreaks of Covid in China, due to a lack of heard immunity, has resulted in China shuttering some big cities and ceasing production of goods and services. While the US is not very dependent on Russian Oil, about 2%, many European countries are dependent on both Russian Oil and Gas, Germany in particular. I expect to see oil rise in price going forward. The war has also added a new level of disruption to supply chains in Europe and China. This in turn lowers availability and increases the cost of goods and services.
What does this mean for world economies? Western Europe is likely to have a recession, primarily because of the cost of energy and supply chain issues. China too, is having issues with commerce, energy and most importantly a severe debt problem brought on by over development of properties. For this reason, it is my belief that investing outside of the US at this time is not a wise idea.
The US has the ability to continue to grow, is less dependent on foreign energy and consumers have been stepping up their spending. Covid has become less of an issue in the US as we come closer to heard immunity. As parents feel safer about sending their children to school, we are going to see more parents going back into the workforce. This may also be the case for retirees and people who in the past had worked part time jobs. The FED is raising interest rates to tamper inflation. All of these bode well for the US economy. Since the US stock market might see a brief dramatic decline at some point, this is not the time to buy or sell. I’m expecting to see the US stock market move up during the year. I don’t see a US recession this year.
March 18, 2022