War in Ukraine, Market Turbulence, Recent Rebalance

Written by Canty Financial - Published on March 24, 2022

Recent changes in the geopolitical environment have warranted changes to our portfolios.

As the deeply disturbing war in Ukraine continues to develop, we are observing the potential impact on the stock, bond, and commodity markets across various sectors and regions. 

We have decided to reposition the portfolios to adapt to the escalating conflict in Eastern Europe. 

Recent Rebalance

In our view, the continued escalation of the conflict will have negative consequences for European growth, global inflation, and energy prices. As a result, we are moving our portfolios underweight non-US developed market stocks to get ahead of potential negative disruptions, earnings misses, and economic slowdowns specifically within Europe. 

We are also continuing to add exposure to energy stocks and commodities with our recent rebalance. The changing macro environment is likely to constrain supply chains and industrial production schedules. At the same time, its likely cost-push inflation has a net negative effect on global growth. While the U.S. is more resilient to economic sanctions placed on Russia and rising energy prices compared to other developed nations, there will still be reverberating effects. 

Economic Impact

While the Russian economy is only 1/20th the size of the United States it’s unlikely even significant economic damage within Russia will have major effects on global growth. At the same time, Russia provides 10% of global energy production and 50% of European energy production, so the impact on energy prices is almost certain.

Both consumers and corporations within the U.S. are less likely to be affected compared to the rest of the developed economy, with their biggest impact being rising energy prices. Currently, the S&P 500 sales to Russia are just 0.1% of total sales, so there should be no real meaningful impact on most large-cap U.S. companies.

Moving Forward

Overall, geopolitical events are extremely difficult to forecast, even more so when it comes to their impact on the stock market. The dramatic volatility we’ve seen in the last three weeks is a prime example of the current uncertainty within the market. 

We will continue to monitor the situation as it progresses and make changes to the portfolios where necessary. During times like this, a focus on broad diversification and understanding your time horizon is vital to properly manage risk.

If you have any questions about our current views on the market or would like to discuss further, please don’t hesitate to reach out.

Written by: Ed Canty, CFP®

Bill Canty, CFP®, CPA

Joe Canty, Investment Advisor Rep.

Ed Canty, CFP®

Maureen Walsh, EA, Investment Advisor Rep.

Tina Alteri, CPA, Tax Advisor

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