In today’s Steady Investor, we dive into key factors that we believe could impact the future of the market such as:
U.S. Bans Imports of Russian Energy Sources – President Biden announced this week that the U.S. will immediately prohibit imports of Russian energy sources, including oil, liquified natural gas, coal, and other petroleum products. The U.S. is also barring new investment in Russia’s energy sector and cutting off American financing for foreign companies that invest in the sector. The bold move coincided with a private sector exodus from the Russian energy market, with major players like BP, Shell, and Exxon all heading for the exits. These large-cap Western oil companies had all spent decades investing and establishing positions in Russia’s sizable energy market, but in less than 60 hours last week, BP said it would divest its 20%1 stake in Rosneft (the Russian state-controlled oil company), Shell announced an end to its involvement in the now-halted Nord Stream 2 pipeline, and Exxon said it would shut down production of a major oil and gas project in Russia’s Far East. Russia accounts for about 8% of total U.S. oil imports, so the near-term impact will be significant but likely not crippling.2
Why You Should Avoid Timing the Market
In times like these when so many unknowns and fears fill the headlines, it can be tempting to try and time the market. This urge is what causes many investors to sell in and out of the market at the wrong times. But what would happen if you changed this cycle?
Investors often fall into the trap of trying to buy “at just the right time,” or sell stocks during a crisis when emotions are running high. To better help you avoid acting off emotions and fear, try downloading our guide, “How Market Timing Can Affect Your Retirement Plan”3. This guide explains these behavioral traps and offers potential solutions.
If you have $500,000+ to invest, get our free How Market Timing Can Affect Your Retirement Planning guide today.
What Will Happen to Gas Prices as a Result of the Ban? In all likelihood, U.S. gas prices will be pressured higher in the short-term. Energy markets were already tight before the ban went into effect, as strong global demand continues to bump up against constrained supply that is yet to fully recover from pandemic-induced production slowdown. Gas prices were pushed higher as traders, shippers, and banks have turned away from the Russian oil trade, and the ban appears likely to exacerbate these near-term pressures. Last week, the average price for a gallon of regular unleaded gas in the U.S. hit $4.17 a gallon, breaking a previous record for high gas prices set in July 2008. It remains to be seen if high gas prices cause a shift in consumer behavior, which is poised to see a shift from spending on goods to spending on services. In our view, however, U.S. consumers are in a strong relative position to absorb higher prices at the pump – household net worth is at an all-time high, jobs are widely available across the economy, and wages have been rising alongside inflation.4
Wheat and Nickel are Two Other Commodities Feeling Acute Pressure from the Invasion – rising crude oil prices have been all over the headlines lately, but there are other key commodities feeling price pressures as a result of the war – namely, wheat, aluminum, and nickel. Ukraine and Russia together account for 30% of the world’s what exports, and the war has caused not only production disruptions but also issues with shipping in the Black Sea. Reports this week showed that some 200 ships are stranded at Ukrainian ports, many of which would be carrying wheat and corn out to export markets. Russia is also a major supplier of aluminum used in soda cans, aircraft, and building construction, and the country accounts for ~6% of the world’s nickel supply and 17% of ‘high-purity’ nickel production, the kind currently used in electric-vehicle batteries. Nickel prices nearly doubled last week alone, as supply disruptions put upward pressure on prices and ultimately led to a short squeeze, where traders who had previously bet on price declines had to buy back nickel forward contracts to cover.5
Is a Russian Debt Default Bad News for Markets? The Russian government appears poised to default on some of their sovereign debt payments due later this month, a likelihood that has arguably led ratings agencies to cut Russia’s credit ratings further into junk territory. Russia has rubles available in its reserves to make the coupon payments on debt, so part of the default stems from being cut off from payment systems that would enable the country to meet debt obligations. Much of this debt has already lost severe value in the past couple of weeks, given the ruble’s sharp depreciation on the dollar. While an outright default sounds worrisome for the capital markets, it is not so severe when considering the overall size of Russia’s sovereign debt held by foreigners – which amounted to about $60 billion total. By comparison, the U.S. Treasury plans to auction close to $50 billion in new debt in the next month alone. A Russian default will not lead to any type of financial contagion, in our view – the numbers are too small.6
No one knows exactly how these situations will continue to unfold and what the continued impact could be on the markets. These unknowns can cause many investors to fall into the trap of trying to buy “at just the right time,” or sell stocks during a crisis out of fear. Both of these impulses are likely to lead to more failures than successes over time.
But before making any big decisions, check out our guide, “How Market Timing Can Affect Your Retirement Plan.”7 This guide seeks to explain emotional and behavioral traps that investors can fall prey to and offers potential solutions to common mistakes that many self-managed investors make.
If you have $500,000 or more to invest and want to learn how you may be able to avoid these mistakes today, get your free copy by clicking on the link below:
Disclosure