Macro Insights: Eye of the geopolitical storm

UKRAINE: The Ukraine invasion drove the S&P 500 into -10% correction territory and NASDAQ near -20% crash. Global markets are in the eye of a geopolitical storm. History shows geopolitics, whilst often tragic, has little lasting global market impact. But specific areas, from eastern Europe to commodities, are severely impacted. Global fundamentals are secure and our contrarian sentiment indicator at rare lows. More risk averse investors should consider dollar-cost averaging to both manage volatility and capture an eventual recovery. The more risk tolerant, Value sectors like energy and financials, and ‘big-tech’.

FUNDAMENTALS: We believe the fundamentals are secure. Ukraine adds to, but does not decisively change, the higher inflation and lower growth risks markets were already dealing with. Many underlying fundamentals have been strengthening. We are coming off a good Q4 earnings season, with economies now reopening. Valuations are lower, Fed risk better priced, and sentiment poor. A March 16th Fed hike could be a cathartic event.

SENTIMENT: Our contrarian investor sentiment indicator (see chart) is at levels only seen in March 2020 pandemic, 2011 ‘Black Monday’ US debt downgrade, and 2008-9 global financial crisis. This is a composite of VIX volatility, S&P 500 put /call ratio, AAII investor sentiment, and ETF and mutual fund flows. With sentiment this negative there has historically been significant market upside to an eventual easing of uncertainty.

All data, figures & charts are valid as of 24/02/2022