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Market Strategy 3/07/2022

  • John Stoltzfus
  • March 7, 2022

Like a Bridge Over Troubled Waters

With geopolitical tensions high, US stocks show resilience
  • Counter to intuition, the major US equity indexes have shown resilience by delivering positive results since the February 24 invasion of Ukraine by Russia.
  • The outbreak of hostilities in Ukraine has increased investor focus on defense stocks. We highlight three funds in the aerospace and defense industries in this report.
  • With 495 or 99% of the firms in the S&P 500 index having reported, earnings are up 38.2% in Q4 from a year ago on back of revenue growth of 15.2%. Some 77% of firms beat analyst forecasts.
  • Data last week from the ISM showed businesses remaining confident and in expansionary territory, while the nonfarm payrolls report showed an outsized gain in jobs added and improvement in the labor force participation rate. 

Russia’s invasion of Ukraine begins its second week with no sign of peace talks of any substance on the horizon. Super-sized sanctions on Russia, its central bank, many of its businesses, and a number of its most powerful individuals have begun to hit their marks but have apparently not yet convinced Vladimir Putin to give peace a chance.

The outcome of the Russian incursion into Ukraine has in a way taken the whole world hostage in a high stakes game with possible significant implications for the balance of geopolitical power going forward as well as the near-term health of the global economy as countries around the world look to exit the pandemic already with no small amount of trepidation and concerns.

While Russia is a small economy its military might and geopolitical audacity give its allies and enemies alike pause to ponder not just the outcome of what’s taking place in the war zone but in consideration of the damage that is being sustained on a day to day basis by the global economy buffeted by higher prices of oil and the prices of a number of other key commodities often sourced in Russia that run production and services on a daily basis around the world.

From February 24 when the incursion began through last Friday, markets have been roiled as decisions at many levels by corporations, small businesses, governmental entities, educators and consumers consider the collateral damage to entities close and distant to the hostilities.

Quotation from Aenean Pretium

The resilience thus far shown by stocks since the outbreak of hostilities suggest that so far good economic and corporate fundamentals have provided support for US stocks since Russia’s troops moved into Ukraine.

Since Russia made its move into Ukraine, major equity indices across the globe have experienced significant jumps in volatility as traders and investors ponder the effects on economic growth and revenues and earnings of business in the months ahead. Inflation stateside, already at a four decade high tied to disruptions in the global supply chain and labor shortages, is at risk of running even higher in the near term so long as negotiations fail to move ahead to resolve the current situation in a peaceful manner.

In our view, times like these historically have often required investors to practice discipline and stay on course in troubled times in order to meet intermediate and longer-term investment goals and objectives. Our experience over four decades and most recently from what came to pass from the market low of the financial crisis on March 9, 2009 (and fast forward to the current process of exiting the pandemic crisis) tells us to avoid giving too much weight to dark projections of outcomes and instead consider what actions to take to facilitate portfolio navigation of the immediate challenges at hand.

The Crash of 2009 - 13 Years on

Wednesday will mark the 13th anniversary of the crash of 2009. We remember the day and its aftermath clearly. Dark-outcome projections were the order of the day. We recall consensus focus seemed in those days too often to focus on “the next shoe to drop.” Those who gave too much weight to negative projection of what the outcome from the financial crisis would be showed in the light of day and historic hindsight that they’d suffered more from missed opportunities than from opportunities they might have sought out in what was a maelstrom of significance.

From the start of the Russian incursion into Ukraine on February 24th through last Friday the Dow Jones Industrial Average, the S&P 500, the S&P 400 (midcaps), the S&P 600 (small caps), the Russell 2000 (small caps) have counterintuitively respectively risen: 1.2%, 0.94%, 1.03%, 1.32%, 0.25% while the NASDAQ Composite (some 40% weighted in tech or tech related stocks) shed 1.2%. The resilience thus far shown by stocks since the outbreak of hostilities suggests that so far good economic and corporate fundamentals have provided support for US stocks since Russia’s troops moved into Ukraine.

The year to date losses for the aforementioned indices so far mostly reflect worries about inflation, oil prices, supply chain disruptions and labor shortages tied to the pandemic as well as the effect at least in part of the current administration’s policy toward fossil fuel which crimped US energy independence and in effect has caused the country to become subject to OPEC and non-OPEC member production regimes.

In the week ahead news from the front in Ukraine could weigh further on stock prices while world leaders seek out a means to finding resolution sooner than later. We remain constructive on equities. “Know what you own and why you own it and keep exp

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John Stoltzfus


Chief Investment Strategist, Oppenheimer Asset Management Inc.

John is one of the most popular faces around Oppenheimer: our clients have come to rely on his market recaps for timely analysis and a confident viewpoint on the road forward. He frequently lends his expertise to CNBC, Bloomberg, Fox Business, and other notable networks.

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