Russia Standoff Keeps Volatility Elevated | Investors Edge

By John Stewart, chief investment officer at Farmers Trust Co.
CANFIELD, Ohio — The Russia/Ukraine situation continues to dominate news headlines, and it has been driving market volatility as well in what was already a rocky start to 2022 for stocks.

I won’t speculate on what Russia’s intentions are regarding Ukraine one way or another, but the immediate result of all the consternation has been continued upward pressure on oil and natural gas prices. Guess who produces a significant amount of those resources?

Case in point, the Russian stock index is up 6.5% thus far in February versus a loss of roughly 1% for the S&P 500 index.

One thing higher energy prices are likely to do is keep the Fed on track to tighten monetary policy by raising interest rates several times this year.

Tighter liquidity conditions will continue to cause indigestion for U.S. equities, especially if the economy begins to slow in the coming months – something we’re keeping a close eye on.

Featured Insight:  Don’t Chase Performance

Many investors look at historical performance when attempting to select individual stocks or mutual funds. This makes sense given that with many things in life, we tend to estimate the future by looking at the past.

While momentum, that is, buying investments that have been performing well recently, can persist longer than some people think; chasing performance can be very dangerous.

Most of the high-flying growth stocks of 2021 have been complete disasters so far in 2022. Mutual funds have been no different. If you decided to invest in the best performing mutual funds of 2021, you have likely lost a fair amount of money during the first seven weeks of this year.

Bottom feeding, or trying to buy stocks that are down and have performed poorly, can be equally as challenging of an approach.

So what’s an investor to do? The best approach is to buy high-quality businesses with strong management teams and consistent sales and earnings growth. If you can buy those companies when they’re down in price, all the better!

Looking Ahead:  Economic Data to Lead Market

Now that quarterly earnings season is wrapping up, economic data will take the baton in terms of leading markets for the next couple of months. Next week will involve a deluge of data for investors to analyze.

Consumer confidence has been a weak spot for the economy, and we’ll get another update on that. We’ll also get some housing data including the home price index and new home sales.

The biggest day for data will be next Friday, Feb. 25, when we’ll get more inflation data, as well as personal income and consumer spending numbers.

Strong numbers could worry investors by keeping the Fed in inflation-fighting mode, while weak numbers could call future earnings growth into question. Either way, more market volatility is likely.

Copyright 2022 The Business Journal, Youngstown, Ohio.