At a time when many investors have become concerned about the U.S. stock market, one thing we did not need was an aggressive military incursion in Europe. While the Russian annexation of parts of Ukraine dominates the headlines, it is drowning out any positive news about the actual companies we are invested in. You are probably not hearing that the earnings for companies in the S&P 500, in aggregate, rose 22% last quarter, or that overall economic growth in the U.S. continues to be unusually robust.
Professional investment managers tend to scratch their heads when world events trigger market downturns. It’s hard to see any clear way that troop movements in Ukraine materially impact the actual underlying value of the industries, sectors, or companies they’re invested in. History tells us that once the panic headlines have passed, stock prices migrate back to whatever they have been worth all along. This has happened through events that were much more dramatic than what we’re facing today: World War II, the Cuban Missile crisis, the Kennedy assassination, and more recently, the Covid-19 pandemic.
The best prediction we can make is that the people who will suffer losses if this Ukraine-triggered downturn persists are the investors who sell out of their portfolios, lock in their losses, and miss the eventual recovery. As of yesterday, the S&P 500 saw a 10% loss in 2022. While this may be nerve-racking to watch while reading the headlines, rest assured market corrections are normal. On average, the stock market experiences a 10% correction about once per year and this year it’s come early.
We can pray for the people who are suffering the impact of military aggression, and we can hope and expect that our world leaders will successfully navigate this crisis as they have so many others. What we can’t do is predict how the markets will behave in the next few weeks or months. As always, we continue to monitor the events and we will adjust if necessary.