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February 28, 2022
The situation in Ukraine and its implications for financial markets remain dynamic. Over the weekend, European countries agreed to increase sanctions against Russia by removing certain banks from SWIFT, the electronic system used to settle intra-bank transactions, and applying sanctions against Russia’s central bank. The implications of these actions are largely unknown but will put enormous pressure on the Russian banking system and economy.
There is historical precedent for a collapse of Russia’s financial system. In the late 1990’s, Russia was faced with crippling amount of debt left over from financing the cold war. On August 17th, 1998, Russia decided to default on its foreign and domestic debts. The move sent shockwaves through the financial system and led to the demise of Long-Term Capital Management, a hedge fund headed by two Nobel Prize winning economists, which was later bailed out on September 23rd, 1998. The event was followed by a sharp 19% decline in the S&P 500. The decline was short-lived, and the market rallied back to all time highs by the end of November of that year.
We don’t know how the current situation will unfold, but using 1998 as a guide, financial markets can likely withstand a collapse of Russia’s financial system.
The swings in the stock market last week were extreme. On Thursday, the Nasdaq swung from a 3.4% decline in the morning to a 3.4% gain by the close. Intraday moves of this magnitude are rare and typically occur around near-term lows for the index. Since the financial crisis lows in March 2009, there have been 11 days when the Nasdaq closed higher after experiencing an intraday swing of more than 5%. The graph below shows those days (red dots), while the table further below summarizes the returns over various time periods following those days.
When volatility spikes as it has recently, often our greatest adversary is our own emotions. Human nature compels us to take some action; but in most cases, the best action is to take no action. Famous investor Benjamin Graham once said, “The investor’s chief problem—and his worst enemy—is likely to be himself. In the end, how your investments behave is much less important than how you behave.”
Keep in mind, the largest up days for the market tend to occur near the biggest down days. The graph below shows the daily change in the Nasdaq since 2009.
Missing just 10 of the best days over that period cuts the overall performance in half. Remember, big up days happen near big down days. While the news we are seeing out of Ukraine is heart-breaking, we shouldn’t let it be the sole driver of our investment decisions.
T I P O F T H E W E E K
Always explore the alternatives before you make a big-ticket purchase. A few minutes of online searching may bring you exactly what you want (or close) at considerable savings.
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THE WEEK AHEAD: KEY ECONOMIC DATA
Tuesday: ISM (Institute for Supply Management) Manufacturing Index.
Wednesday: ADP (Automated Data Processing) Employment Report.
Thursday: Factory Orders. Jobless Claims. ISM (Institute for Supply Management) Services Index.
Friday: Employment Situation.
Source: Econoday, February 25, 2022
The Econoday economic calendar lists upcoming U.S. economic data releases (including key economic indicators), Federal Reserve policy meetings, and speaking engagements of Federal Reserve officials. The content is developed from sources believed to be providing accurate information. The forecasts or forward-looking statements are based on assumptions and may not materialize. The forecasts also are subject to revision.
THE WEEK AHEAD: COMPANIES REPORTING EARNINGS
Monday: Lucid Group, Inc. (LCID), Zoom Video Communications, Inc. (ZM).
Tuesday: Salesforce.com, Inc. (CRM), Target Corporation (TGT), Ross Stores, Inc. (ROST).
Wednesday: Dollar Tree, Inc. (DLTR), Snowflake, Inc. (SNOW).
Thursday: Broadcom, Inc. (AVGO), Costco Wholesale Corporation (COST), Best Buy Co., Inc. (BBY), Marvell Technology, Inc. (MRVL), The Kroger Company (KR).
Source: Zacks, February 25, 2022
Companies mentioned are for informational purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Investing involves risks, and investment decisions should be based on your own goals, time horizon, and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. Companies may reschedule when they report earnings without notice
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Q U O T E O F T H E W E E K
“Who are wise in love, love most, say least.”
ALFRED, LORD TENNYSON
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T H E W E E K L Y R I D D L E
You have a can of soda in your hand and someone tells you to drink the bottom half of it first. How can you do that?
LAST WEEK’S RIDDLE: You go in through one hole, you come out through three holes. Once you’re inside you’re ready to go outside, but once you’re outside you’re still inside. What is it?
ANSWER: A Sweater.
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SteelPeak Wealth –
Institute of Portfolio Management
For more financial news and resources, visit our Insights page ⇒
Steel Peak Wealth Management, LLC (“SteelPeak Wealth”) is an SEC registered investment adviser located in California. There is no guarantee that any views, projections and/or opinions expressed herein will come to pass. This report should not be construed by any prospective investor as SteelPeak Wealth’s rendering of any personalized investment advice. Information on the registration status of SteelPeak Wealth is available at www.adviserinfo.sec.gov. A copy of SteelPeak Wealth’s current written disclosure brochure is available upon written request.
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The forecasts or forward-looking statements are based on assumptions, may not materialize, and are subject to revision without notice.
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CITATIONS:
The Wall Street Journal, February 25, 2022
The Wall Street Journal, February 25, 2022
The Wall Street Journal, February 25, 2022
The Wall Street Journal, February 22, 2022
The Wall Street Journal, February 24, 2022
