Market Update March 4, 2022 - Ukraine
March 07, 2022
We continue to monitor Russia’s invasion of Ukraine. Economic sanctions imposed on Russia and peace talks have yet to yield any reduction in hostilities; and unfortunately, comments from Putin and other Russian leaders suggest an end to the invasion is not near. Mean
while, the humanitarian crisis grows with reports of at least 2,000 Ukrainian civilians killed and over 1 million fleeing to neighboring countries1.
From an economic standpoint, consensus estimates for U.S. and global GDP growth in 2022 have been trimmed slightly, but we suspect may move lower. Consensus U.S. GDP growth in 2022 is 3.8%, down from 4.0% at the beginning of the year2. The recent spike in commodity prices (e.g., WTI crude oil prices are up 20% since the invasion and 76% from last year3) may start to siphon money from consumers’ disposable income and lead to lower demand and economic growth. Further, lo
wer demand and higher costs may start to pressure corporate earnings.
Importantly, the U.S. and global economy entered this most recent turmoil on solid economic footing. We still expect economic recovery from the pandemic to continue into 2022. Labor markets continue to improve, consumer and business balance sheets are strong, and underlying demand remains robust. Further, the U.S. Federal Reserve is likely to move a bit slower with rate hikes given the heightened economic risks associated with the war in the Ukraine. Even if GDP growth estimates do move lower, it is important to keep in mind that a 3.0%-3.5% U.S. GDP growth rate would rank among the highest in the past several decades.
In regards to our exposure to Russian investments, our exposure is very low. Russia started the year at less than 4% of the MSCI Emerging Markets Index and has now been removed from the index given market participants have concluded that the Russian equity market is currently not investable4. Additionally, the emerging market actively managed mutual funds we utilize in client portfolios were mostly underweight to Russia (however, please note passive ETFs will likely have a market weight). Further, our individual stock and bond holdings have limited exposure to Russia.
The situation in Ukraine is saddening, unpredictable and presents a sig
nificant risk to the global order we have grown accustomed, the global economy, and financial markets. We will continue to monitor the situation and its impact on the economy and financial markets. In the meantime, we advise clients to assess and plan for near-term liquidity needs, but remain focused on their long-term investment goals and objectives.
Please reach out to your wealth advisors if you have any concerns.
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