Markets Respond to Attacks by Russia
What is it?
“On the first day of his semi-annual testimony, Powell confirmed that a 25 basis points rate hike in March would be appropriate. Powell voiced his concerns over the inflation outlook and noted that there wouldn’t be any direct effects on the US economy from Russian sanctions.”*
While the effects may be indirect, the stock market has responded to this evolving story.
“The dollar continued to gather strength against its rivals and the US Dollar Index (DXY) reached its highest level since June 2020 in the American trading hours on Wednesday.”*
The chart below shows the change of value for the Russian stock market index (RSX) in orange and the S&P 500 (^GSPC) in blue. On the one-month chart created on March 4, 2022, RSX was down 72.96% more than GSPC at that time.
Source: Yahoo Finance
There is a difference between responding and reacting. The Russian stock market index has reacted abruptly to the recent news. However, the S&P 500 (a U.S. stock market index) has responded much more casually as shown in the previous chart.
Why does it matter?
The price of Oil has global impacts ranging from the largest corporations to the end consumer such as at the gas pump.
“Russia’s increasingly violent war against Ukraine, forcing more than half a million residents to flee, has sparked intense volatility in the energy markets, partly because Russia provides 10 percent of the world’s oil and more than a third of the European Union’s natural gas.”**
More and more businesses have stopped doing business with Russia, and sanctions may come that eliminate the purchase of Oil owned by Russia. The implications of the war will not only affect consumers but investors like us. We will continue to analyze the global economy, in regards to how we may respond to new information, especially with U.S. investments.
Inside View on the BAFG Matrix: Tactical Diversifiers
Here is an inside view of the Tactical Diversifiers section in our matrix from March 4, 2022. This model includes various bond ETFs, gold, and a mix of commodities (PDBC). The model is used to diversify an equity allocation in the hopes to lower risk.
Here’s a link to the model page on our website: https://breakawayfinancialgroup.com/tactical-diversifiers/
Source: Breakaway Financial Group
Last week we made adjustments to the portfolios with the help of our matrix. A quick look at the matrix can show us that PDBC (a mix of commodities including oil) is overbought. Gold (GLD) is in a strong trend but not yet overbought. Treasuries and other defensive bonds are gaining traction. On the other hand, EMB (an Emerging Market Bond ETF) is not a current holding. We are not looking to add to it because of how weak the trend, momentum, and other factors have been. Lastly, we are looking to add to some of the diversifiers as they gain signal strength, positive momentum, and other favorable circumstances.
Other articles I found interesting this week:
Fed Chair Powell: ‘War Underscores Need’ for Crypto Regulation
Saudi crown prince plays the oil card in quest for U.S. recognition
Current 401(k) portfolio
Our last portfolio reallocation: 1/31/2022.
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Sources:
*Eren Sengezer. “Forex Today: Dollar rally loses steam on ceasefire hopes”. 3/3/2022. FX Street. https://www.fxstreet.com/news/forex-today-dollar-rally-loses-steam-on-ceasefire-hopes-202203030706
**Stanley Reed. “Countries rush to release emergency reserves as oil prices soar”. 3/1/2022. The New York Times. https://www.nytimes.com/2022/03/01/business/ukraine-russia-oil.html#:~:text=Russia’s%20increasingly%20violent%20war%20against,the%20European%20Union’s%20natural%20gas.
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