Russia and Ukraine (ADV)
Our thoughts and prayers are with the people of Ukraine.
The invasion of Ukraine is a travesty, but this event is unlikely to change the long-term outlook for corporate profits. We believe there will be continued short-term weakness with stock prices, but this weakness should lead to a buying opportunity.
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Putin’s goal, as best we can tell, is to install a Russian-controlled regime in the capital of Ukraine. Russia’s armed forces should easily sweep aside the Ukrainian military (unfortunately with considerable loss of life on both sides). The bigger challenge for Russia will be occupying and managing the country afterwards, which is opposed to becoming a full Russian state. Russia will likely be faced with an expensive occupation or admitting defeat and pulling out.
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From our perspective, the biggest risk from this conflict is potential NATO involvement. Putin said in his speech last night that anyone “who might be tempted to meddle in the ongoing events, whoever tries to stand in our way or create threats for our country and people should know Russia's response will be immediate and lead you to consequences you have never encountered in your history.” For now, we think the chances of this conflict becoming a global war remain very low.
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We have no idea how far the issue will progress but our “base case” is that the conflict is contained inside of Ukraine. The White House has stated that they plan to penalize Russia via economic and financial sanctions. But other countries, like China and Germany, have strong interests in continuing to exchange and trade freely with Russia.
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Despite this latest “uncertainty”, we have a long list of geopolitical conflicts throughout history to study and learn from. This conflict pales in comparison to other geopolitical events seen throughout history. For example, let’s look back at the First Gulf War, which caused equity prices to decline ~20% over a couple of months. However, they returned to a new high within four months of the low. That same time period also experienced an economic recession due to the Savings & Loan crisis. Another 20+% decline occurred in 1962 as the US and Russia came close to military conflict during the Cuban Missile Crisis. Stocks fell over 20% in three months but recovered soon after.
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The bottom line is that we think equities are likely to rebound from recent strife and work their way higher this year. The bull market in stocks won't last forever. But, for now, we do not think this conflict is a signal that the bull market is over.
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Below is a historical look at geo-political events and how the stock market responded. Stocks have historically climbed the “wall of worry” when geopolitics seemed uncertain, and we have no reason to believe this situation will be different.
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We understand that stock market volatility can be worrisome. We want to make sure you know we are here to assist you in every way possible.
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We are here to provide you not only with insight, but with advice on how we can help manage the effects of – and capitalize upon – the markets’ movements. We’re watching the markets closely and will reach out should anything require immediate action. In the meantime, please feel free to get in touch if you’d like additional perspective or guidance.
Sincerely,
Barberis Wealth Management
Steward Partners Global Advisory
7550 Wisconsin Ave Suite 420
Bethesda, MD 20814
All recognition award information can be found on Steward Partners’ website at https://www.stewardpartners.com/recognition.34.html
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Steward Partners Global Advisory, LLC and Barberis Wealth Management maintains a separate professional business relationship with, and our registered professionals offer securities through, Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services offered through Steward Partners Investment Advisory, LLC. All investing involves risks, including the possible loss of principal amount invested. Investments mentioned may not be suitable for all investors. Steward Partners Global Advisory, LLC and Barberis Wealth Management maintains a separate professional business relationship with, and our registered professionals offer securities through, Raymond James Financial Services, Inc., member FINRA/SIPC. AdTrax #4369660