The world seems quite different than it did just 30 days ago. On February 24th, Russia stunned geopolitical leaders by invading the sovereign nation of Ukraine and engaging in widescale military conflict. Prior to the invasion, global growth was accelerating as pandemic restrictions were lifting, and central banks were beginning to start the process of normalizing interest rates. However, today fears over deglobalization leading to slowing global growth, and even recession, resulting from the conflict have emerged. In addition, as inflationary pressures have further increased due to commodity shortages, investors are now wrestling with the potential for a market environment where stagflation takes hold. This scenario is a scary prospect for investors as anemic economic growth paired with inflation makes real returns hard to come by. In this piece, we will explore why we believe this narrative is less likely, and the potential for further deglobalization may be positive for domestic growth in the near term.

Inflation increased last month at the fastest pace in 40 years. Volatility remains high as equities finished the last week of February higher than expected, despite hints from the Fed that it may be raising interest rates further in March. While bonds outperformed U.S. Large Cap, they were still down for the month due to rising interest rates. The U.S. joins its European allies in imposing sanctions on Russia, affecting commodity prices, including metals and oil. As these prices increased, Commodities and Natural Resource Equities performed well.

As the conflict between Russia and Ukraine unfolds and the global response to Russia’s actions accelerates, Pathstone continues to closely monitor events. While our mission as a firm is to responsibly steward client assets, as individuals our thoughts are with those most directly impacted by the war and unfolding humanitarian crisis.

In this note, we reiterate Pathstone’s investment position and summarize our operational response to current events, including internal relief efforts. We also highlight an opportunity for clients to engage further in dialogue on these issues.