Medicare Agent News: Look Past the Current Volatility

Monday, February 28, 2022

Look Past the Current Volatility

By Nicholas Jasinski | Monday, February 28

Stay the Course. Wall Street had another choppy day of trading, with steep morning losses nearly erased by a big afternoon rally. Under the surface, moves suggested that investors are still wrapping their heads around the implications of the war in Ukraine and resulting sanctions by the U.S. and its allies on Russia. But the long-term picture for markets in 2022 isn't all that different than it was a month ago.

Energy, defense, and cybersecurity stocks rose, while banks, travel-related stocks, and companies with the most revenue exposure to Russia fell.

Occidental Petroleum rose 13%, Northrop Grumman added 8%, and Fortinet rose 6%. EPAM Systems, meanwhile, lost almost half its value today after withdrawing financial forecasts for all of 2022. The company's largest software-development sites are located in Ukraine, Belarus, and Russia. Booking Holdings fell 5% and JPMorgan Chase lost 4%.

But nowhere have the moves lately been as extreme as in Russia’s stock market and currency. The Russian ruble has declined by almost a third versus the U.S. dollar since just last week. And the largest U.S.-listed exchange-traded fund holding Russian stocks, the VanEck Russia ETF, dropped 31% in today's trading.

The huge declines are a result of sanctions levied by the U.S. and its allies on Russian institutions. Those include removing some Russian banks from the Swift financial network, which is used to process transactions between banks. The sanctions have also targeted individuals, Russia’s central bank—including freezing assets it holds overseas—and Russia’s sovereign wealth fund.

All of that makes it much harder to conduct trade and do business in rubles, which means less demand for the currency, dragging down its price relative to other currencies.

In attempt to stem the decline in the ruble, the Russian central bank more than doubled its target interest rate, to 20% today, from 9.5%. That's meant to counter the flight from the ruble by making it more attractive to hold cash and earn interest on it.

Russia’s central bank also prohibited brokers from selling securities owned by foreigners, and ordered Russian stock and derivatives markets to remain closed on Monday and Tuesday.

The impact on the U.S. and global economies won't be nearly as severe as what Russia is feeling. The post-pandemic recovery should continue, albeit with higher energy prices and potential for more supply chain disruptions. The Federal Reserve will continue on a path toward tighter monetary policy, as U.S. inflation remains elevated and unemployment low.

Ukraine-Russia headlines will continue to be a source of concern and introduce volatility into the day-to-day trading. But the situation as it currently stands shouldn't leave investors overhauling their long-term strategies.

"Geopolitical risks are always a wildcard in investing and are nearly impossible to forecast," wrote members of asset manager Nuveen's Global Investment Committee. "We don’t think this is a time to overreact or adjust plans. Institutional investors should focus on long-term policy objectives, individual investors should remain committed to their portfolio growth and income objectives. All should stick with the broad diversification, asset allocation and portfolio rebalancing plans already in place."

In other words, stay the course.