KF Update – Market Thoughts

4 Minute Read

Good morning, I hope this email finds you well and you are gearing up for Spring! I wanted to send along a brief email with some of my thoughts on the markets, the economy, and the Ukraine-Russia War.  If you have any questions, please do not hesitate to contact the office.

The Markets & Economy
Stocks have continued a volatile start to the year in the face of persistent inflation, higher energy prices, and now the conflict in Eastern Europe.  

The economy on the other hand is continuing to show strength, with last week’s jobs report coming in well above estimates.  Economists anticipated 400,000 new jobs added in February, and that number was actually 678,000, dropping the unemployment rate to 3.8%.  Unfortunately, solid economic news doesn’t equal ratings for most media platforms so this headline was quickly forgotten.

The Numbers
The S&P 500 is down roughly 12% since late December, while the Dow is hovering around a 10% decline.  When a major index drops from its high more than 10%, it’s considered a correction.  When an index falls 20% or more, it’s considered a bear market, which many times is accompanied by a recession.

On average, markets have a correction almost every year, while bear markets and recessions are more rare, and almost impossible to predict. 

For better context, here is a graph of the S&P 500 over the past 10 years:

Here is the last 25 years of the S&P 500

As you can see over many years, we have had corrections, bear markets, recessions, and the market continues to trend upwards and reward long-term investors.  As difficult as it can be to watch our investment accounts during these downturns, keeping that long-term perspective is one of the most important aspects of successful investing.

I’ve shared this next graphic several times, but it still rings true.  We understand that investing can be very much emotional, particularly in a 24 hour news cycle, social media world; it can be difficult to escape any sort of negative news.  That said, the most successful investors are able to set that emotion aside, tune out that noise, and simply ride out the ups and downs.

KF Portfolio Management
Client portfolios are positioned for rate increases and the possibility of elevated inflation for the foreseeable future.  We also do not own Emerging Market investments within client portfolios, and haven’t for several years.  Emerging Markets are those that invest in countries such as Russia, China, India, and Brazil.  For several years I have not felt comfortable investing client assets in those regions, and it turned out to be a good call as Russian stocks currently cannot be traded, and many Emerging Market Index Funds removed Russian companies after the escalation of the invasion on Ukraine. 

We may be rebalancing client portfolios in the coming weeks if there is more weakness in the equity markets, taking advantage of more attractive valuations.

The Ukraine – Russia War
First and foremost your heart goes out to the millions of people affected by this War.  It’s an awful human tragedy, and I couldn’t begin to understand what the Ukrainian people are going through.  I did a bit of research to try and better understand what exactly is going on, and I found this 9 minute video explaining the history behind the invasion.  This has been an ongoing situation for decades, and the invasion is the latest development.

Putin’s war on Ukraine, explained

In Summary
I do not know how long or what the end result of the War will be, when gas prices will come back under control, or when inflation will recede to more reasonable levels.  I do know that when these things happen, there will be several other headwinds both economically and politically that we will be dealing with and will always be dealing with as long term investors.

It’s not timing the market, but time in the market that leads to investing success.

We hope you find this information helpful, and again, please do not hesitate to contact the office with any questions.

Clint & Renee