Dear Friends,
This morning’s financial headlines were all about the effects of the Ukraine crisis on the U.S. stock markets. Yes, the markets have been spooked. But should you panic? NO.
Consider this:
The first U.S. laboratory-confirmed case of COVID-19 in the U.S. was on January 20, 2020, from samples taken in Washington State. The S&P 500 (the largest 500 leading U.S. publicly traded companies) closed the next day at 3,320.79. Over the next 44 trading days the S&P 500 reached 7 new all-time highs yet fell nearly 33% to 2,237.40 on March 23, 2020.
Since March 23, 2020, through February 23, 2022, the market has rallied to 4,225.50, up 89%. Along the way the market has hit 91 new all-time highs and recently fell into correction territory, being down over 10% from recent high. For year-to-date 2022, the market is down 11.3%. Declines of this scale are common occurrences. In fact, in any given year since 1980, the average annual drawdown from a peak to a bottom is close to 14%.
So how does the COVID-19 pandemic relate to the Ukraine crisis? Well, the common thread here is, “we don’t know what we don’t know.” We simply don’t know what, where, when, or how market phenomena will play out. And in our experience, the thing in this world that markets hate and fear the most is uncertainty. The Russia-Ukraine crisis is caused by factors beyond our control. Truly it is tragic and catastrophic. The Kremlin’s policy toward Ukraine has taken a hard line since the early 2000s and even more so since Russia first invaded Ukraine in 2014 and annexed Ukraine’s Crimean Peninsula. The ongoing war in Ukraine’s eastern Donbas region has now cost the lives of more than 13,000 Ukrainians. Nevertheless, the investment policy of a goal-focused, plan-driven, long-term equity investor should be unaffected by it.
Despite what the politicians, the economy, or the markets do, our overall investment philosophy at Nalls Sherbakoff is to remain goal-focused and planning-driven, rather than adopting an approach that is market-focused and current-events driven. No one has a crystal ball, and no one can predict what will happen in the future. Consistently timing the market is not possible. We have no control over the uncertainty, however we can and should have perfect control over how we respond to it.
Best,
The Nalls Sherbakoff Group, LLC