Weekly Brief: Investors Have A Severe Case Of The Jitters For The Months Ahead

Weekly Brief: Investors Have A Severe Case Of The Jitters For The Months Ahead

almost 2 years ago3 mins

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You’d be forgiven for being exhausted by a frenetic first quarter of the year, but you’re going to need an even stronger cup of Joe to get through the next one.

🕰 Recap

  • In February, Russia escalated its aggression in Ukraine into a full-scale attack
  • Europe and the US’s reliance on Russian energy helped send the price of a barrel of oil to its highest level in 14 years in March
  • That contributed to the highest US inflation in 40 years
  • … and global stock markets came under pressure too, with the S&P 500 down 5% this year

✍️ Connecting The Dots

Even the best laid investment plans went awry when Russia invaded Ukraine earlier this year. Investors were already grappling with a record rise in the prices of goods and services, not to mention with the climbing cost of borrowing as central banks began to raise interest rates. Those two things alone made for a tricky environment: consumers and companies couldn’t afford as much, slowing spending, earnings growth, and economic growth at large. Factor in a war that’s exacerbated both those issues, and you’ve got a quarter that was tougher than almost anyone could’ve predicted.

Putting that into perspective: the key US stock market index ended the quarter down 5%. Key European indexes were down around 10%, with Russia’s unsurprisingly down some 30%. And Chinese stocks – whipsawed by new coronavirus restrictions, among other things – ended the quarter down 10%, after having dropped 20% at one point. Bonds, likewise, have had one of their worst starts to a year ever. Not so for commodities: the S&P GCSI – a major commodities index – climbed over 30% last quarter, and investors in individual commodities could’ve come out even better. The price of oil and natural gas rose more than 30% and 50% respectively, while coal spiked 50%. And in metals, the price of nickel made the history books.

🥡 Takeaways

1. Uncertainty doesn’t need to mean inaction.

Despite the economic storms, investors were “risk on” toward the end of the quarter: they piled back into riskier assets like stocks and bitcoin. In the wake of the rally, Goldman Sachs analysis showed how investors might benefit from any future upswing, while remaining relatively protected. The firm suggests owning more stocks than your typical portfolio allocation, buying into the recent commodity rally, and holding extra cash in case of a selloff.

2. How to brace for market turmoil.

This quarter, you’ll probably want to adjust for continued upheaval: the Russia-Ukraine conflict, high inflation, and rising interest rates. Consider lowering your exposure to expensive-looking growth stocks in favor of cheap-looking value stocks, as well as defensive stocks like consumer staples, utilities, and healthcare. Think about inflation-linked bonds and floating-rate loans, and gold too: it’s a safe haven asset that could help protect your downside risk while holding its own against inflation.

🎯 Also On Our Radar

Last week, Robinhood announced extending trading hours, joining rivals Charles Schwab and Interactive Brokers in allowing investors to trade even while US stock markets are closed. The move highlighted the narrowing gap between professional and retail investors’ access to financial markets (professionals have long been able to trade “pre” and “post” market hours), and the importance of empowering retail investors with tools to make more informed decisions. Ahem.

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