Market Commentary: Russia-Ukraine Tensions, Inflation Among Contributors to Market Volatility After Relatively Calm 2021

Share Post: facebook Created with Sketch. twitter Created with Sketch. linkedin Created with Sketch. mail Created with Sketch. print Created with Sketch.

Market uncertainty on multiple fronts is making it tough for investors. Russia’s ambitions in Ukraine, inflation, and some upheaval in individual securities are making it more challenging to bear risk than last year. 2021 was relatively calm, with only 80% as many 1% daily moves in the market as normal, and many of those were upswings. Who doesn’t love a 1% jump?

Key Points for the Week

  • Market volatility persisted, as heightened tensions with Russia added concerns to already rattled markets.
  • U.S. retail sales rebounded after a December drop, posting a 3.8% spike, which was well above expectations. Inflation was only partially responsible as consumers spent heavily on goods.
  • Online and auto sales were strong, with their January year-over-year numbers hitting 8.4% and 13.7%, respectively. Both categories are above their pre-crisis trends.

With all the angst about key issues, the economy remains relatively strong. Retail sales jumped 3.8% last month and were 3.1% higher after inflation. Consumers continue to spend, particularly online and for new cars. The retail data reflects the now-regular theme that when COVID cases rise, so do online sales and the demand for autos, which has likely been intensified by the chip shortage.

The pent-up demand for goods continues to contribute to higher prices at the producer level. Producer prices rose 1% last month, indicating pricing pressures remain strong and will likely get passed on to consumers for many goods. The expectation the Federal Reserve will increase interest rates and reduce its balance sheet has pushed mortgage rates to their highest levels since early 2019.

The S&P 500 declined 1.5% last week. The MSCI ACWI declined 1.7% as the fallout from any sanctions against or by Russia would likely hurt European economies more than the U.S. The Bloomberg U.S. Aggregate Bond Index shed another 0.2%, with losses concentrated in the corporate bond market. Russia’s intentions toward Ukraine and the possibility of a summit remain the biggest near-term risks to markets. The personal consumption price report will give additional insight into incomes, spending, and inflation.

Figure 1 (Date Through 2/17/22)


Why is the Market so Volatile?

Market volatility is on the rise. As Figure 1 shows, the S&P 500 has dropped more than 1% ten times already. Before jumping into the key reasons for the volatility, the chart shows this type of volatility isn’t unprecedented. Other years have seen high numbers of declines in the first two months of the year. Beyond January and February, the S&P had a pair of two-month periods in 2018 that saw 10 days of 1% declines. Early 2020 marked even higher volatility as COVID-19 entered our world.

The past volatility also reminds us corrections are a normal part of investing. Technically, the S&P 500 hasn’t even officially reached correction territory as it hasn’t closed down by more than 10% from its all-time record set earlier this year. Even if the market declines further this week, it really doesn’t change the historical fact that we should expect periods of volatility.

Downturns rarely happen for no reason, and understanding the reasons behind market movements can make it easier to be steadfast during periods of volatility. 2022 is off to a volatile start for three major reasons:

  • Russia threatening Ukraine
  • Inflation and interest rates
  • Lower sales and earnings projections

Russia and Ukraine

Russians threatening Ukraine with invasion is a different kind of risk than inflation or earnings revisions. The range of outcomes is much wider, and the risks involve people’s lives, not the prices of used cars. The risk of a land war in Europe raises concerns about a large conflict involving multiple countries. It brings to mind World War I or the early aggression by Nazi Germany that preceded World War II.

For many this conflict seems new. It actually started in 2014, when Russians took territory from Ukraine. The ongoing conflict has costs 13,000 people their lives.

Our view is Russian aggression would likely lead to a market correction that would hurt Europe more than U.S. markets. Europe imports much of its energy from Russia. During the 2014 conflict, the MSCI Europe index fell 2.5%, but the U.S. market dropped only 0.7%. We would expect the short-term reaction to be larger than in 2014 if Russia launches a full invasion.

Inflation and Interest Rates

Closer to home is the uncertainty about how quickly the Federal Reserve will raise interest rates. Some investors are worried inflation won’t respond to slightly higher rates and the Fed will be forced to raise rates rapidly to snuff out inflation. Others see the Fed as raising rates too quickly and undercutting the recovery. The value of earnings drops when interest rates increase. Growth stocks, which have led the market during the last decade, generate more of their earnings in the future and are more sensitive to changes in interest rates. The Russell 1000 Growth is down 13.6% this year, while the Russell 1000 Value is only 3.8% lower.

Lower Sales and Earnings Projections

Difficult comparisons and lower expectations have also been a challenge to many stocks. The list of steep declines includes key names in social media, streaming, and online commerce. Some of these companies were big beneficiaries of the move online during the pandemic and the large economic support checks issued by the government. But competition and slowing growth have caused declines of more than 35% in multiple large companies.

The Key Risk

What makes this environment more challenging is the risks are heightened at every level. Geopolitical, economic, and individual company risks are always present. Today each seems at elevated levels. Russia’s potential invasion is a geopolitical uncertainty with widely unknown outcomes. High inflation and uncertainty around interest rate policy have created a wider set of economic outcomes than normal. Big swings in the future expectations for previous market winners have created big swings in some popular companies.

Yet, none of those risks is as important as the key risk, which is how investors react to challenges. All these types of risks ebb and flow. Sometimes they can be quite severe. Other times they produce swift market reactions. While these swings can set portfolios back, quite often the biggest damage comes from overreacting to risks and pulling out of the market.

Think about your portfolio like being on exercise equipment. If you get on a machine that is more challenging than you want today, it doesn’t mean you shouldn’t use the machine. Instead, just dial back the difficulty or lower the weight until it is at the right level. Long-term returns are the rewards for bearing the risk of being invested. If today’s markets are proving difficult, reach out to your advisor and see if dialing back the risk might make our portfolio’s workout a little easier to bear.

This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.


The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.


The MSCI ACWI captures large- and mid-cap representation across 23 developed markets (DM) and 23 emerging markets (EM) countries*. With 2,480 constituents, the index covers approximately 85% of the global investable equity opportunity set.

Bloomberg U.S. Aggregate Bond Index

The Bloomberg U.S. Aggregate Bond Index is an index of the U.S. investment-grade fixed-rate bond market, including both government and corporate bonds.

Russell 1000 Growth

The Russell 1000® Growth Index measures the performance of the large cap growth segment of the US equity universe. It includes those Russell 1000 companies with relatively higher price-to-book ratios, higher I/B/E/S forecast medium term (2 year) growth and higher sales per share historical growth (5 years).

Russell 1000 Value

The Russell 1000® Value Index measures the performance of the large cap value segment of the US equity universe. It includes those Russell 1000 companies with relatively lower price-to-book ratios, lower I/B/E/S forecast medium term (2 year) growth and lower sales per share historical growth (5 years).

MSCI Europe Index

The MSCI Europe Index captures large and mid cap representation across 15 Developed Markets (DM) countries in Europe*. With 429 constituents, the index covers approximately 85% of the free float-adjusted market capitalization across the European Developed Markets equity universe.

Compliance Case # 01282496

facebook Created with Sketch. twitter Created with Sketch. linkedin Created with Sketch. mail Created with Sketch. print Created with Sketch.
Share Post: facebook Created with Sketch. twitter Created with Sketch. linkedin Created with Sketch. mail Created with Sketch. print Created with Sketch.


Market Commentary: Stocks Are Quite Resilient

In the midst of a banking crisis that has seen some of the largest U.S. banks collapse nearly overnight and 100-year-old European banks verging on failure, not to mention a volatile bond market and a plunge in crude oil — the Federal Reserve raised rates. While we’d expect stocks to tumble …

Market Commentary: The Latest on the Banking Crisis

On the heels of the first three bank failures in years, issues spread across the pond last week as Credit Suisse Group AG became the latest banking institution to make headlines over solvency concerns. Let’s be clear: This Swiss bank was a three-dollar stock two weeks ago and has long been …

Market Commentary: Was Silicon Valley Bank the First Domino to Fall?

Founded in 1983, Silicon Valley Bank’s parent company, SVB Financial, announced on Wednesday it had sold $21 billion in assets to raise cash and was taking a $1.8 billion loss while also trying to raise capital. Due to dwindling deposits and losses in its holdings, the bank was forced to se …

Market Commentary: The Hangover Ends

After the 11th best start to a year for the S&P 500 as of Valentine’s Day, stocks have pulled back during the second part of February in what we would classify as perfectly normal price action. The best three months of the year for stocks are November, December, and January. That means …

1 2 3 36 37 38

Get in Touch

In just 15 minutes we can get to know your situation, then connect you with an advisor committed to helping you pursue true wealth.

Schedule a Consultation

TweetsFollow Us