SANTA BARBARA, Calif. — The stock market is behaving wildly as a war between Russia and Ukraine becomes more likely. But local financial adviser Arthur G. Swalley warns investors to stay disciplined and not panic.
This week, Russian President Vladimir Putin formally recognized two breakaway republics in eastern Ukraine and pledged to support their territorial claims. President Biden denounced this as the start of an invasion by Russia, and the United States and Europe announced sanctions. The crisis rattled stock markets already nervous about inflation and the likely prospect of interest rate hikes by the Federal Reserve.
Swalley, founding partner and chief investment officer at Arlington Financial Advisors, an independent financial advisory firm in Santa Barbara, said long-term investors should stay calm. Given the rapidly rising prices of fossil fuels and precious metals, and the rapid market reactions to every new detail of the ongoing crisis, it seems that much of the recent market volatility has predicted war and not be a permanent reaction to it, he said.
“At Arlington, we view this pre-event volatility as a common market response to uncertainty. Typically, as events unfold, uncertainty is resolved and markets stabilize,” a said Swalley. “A disciplined approach to investing is essential at times like these to avoid overreaction and panic selling at the wrong time when short-term stock prices are generally down and assets are ‘safe’. “as cash and precious metals feel better.”
It can be hard to stay calm when oil is heading towards $100 a barrel and Santa Barbara drivers are feeling it at the pumps. The last time prices soared this high was in 2014 and 2015, not coincidentally when Putin annexed Crimea in his first move against Ukraine. Russia is a massive energy exporter and benefits from rising energy prices. However, while Ukraine is playing a role, there are other factors pushing energy prices higher, particularly post-vaccine consumer demand, Swalley said.
“We are driving more, going out to eat more and traveling more as COVID-19 restrictions have eased and pent-up demand has been released,” he said. “During the pandemic, many energy producers reduced production by closing facilities. Reopening takes much longer than closing, so lower supply combined with higher demand has pushed up energy prices.
Consumer demand is also driving overall inflation, pushing businesses to pay more for basics like labor, materials, and food. The Federal Reserve has said it will respond by raising interest rates several times this year. Over the past 40 years, rising interest rates have been successful in containing inflation. Interest rates are currently at historic lows.
Swalley said his firm believes uncertainty about the impact of interest rate hikes and inflation is a much bigger economic and market risk factor than the Ukraine crisis. The good news is that when the Federal Reserve started raising interest rates in the past, there was never a recession or a bear market at the same time.
Another concern for markets is the possible emergence of new, more dangerous COVID-19 variants. New outbreaks could dampen the economy’s post-pandemic surge. However, Swalley and his team also see this as a moderate concern. Although the risk cannot be completely eliminated, effective vaccines can hopefully mitigate and manage the effects of the disease, he said.
Overall, investors shouldn’t panic. Have a sensible, balanced, long-term investment strategy and stick to it, Swalley said.
“Every investor should have a disciplined plan that helps them avoid making rash decisions,” he said. “Ideally, a good plan can help investors take advantage of the rash decisions of others.”
To learn more about Arlington Financial Advisors, you can click here.