Updated: Jun 7
Financial markets are a culmination of people’s feelings about the future. Markets tend to increase when people feel secure and stable. Unfortunately, the world lacks both security and stability. The impact of the Russian invasion of Ukraine should have negligible impact to the US economy. However, prior to the Russian invasion, inflation was already running high due to supply chain issues and increasing demand. The addition of western sanctions on Russian energy and commodities was the last straw that broke the camel’s back. Current inflation is a whopping 8.5%. Amazon, Walmart, and Target earnings were negatively impacted. They were not able to pass along all the price increases to the consumer. Unfortunately, these companies will get better at passing the price increases to consumers. Let's take a look at how inflation may impact you.
Inflation Impacts Everyone Differently
Russian Energy Can't be Cancelled
Europe is addicted to Russian energy. The Europeans are making a valiant effort to reduce Russian oil imports by 90% by year end. This is a necessary step; however, I don’t feel that the Europeans will come close to getting off Russian natural gas. Furthermore, anything Europe doesn’t buy will end up being purchased by other countries such as China and India. Increasing supplies via drilling new wells is the only way to truly restrict Russian oil and gas. Russian exports will slowly deteriorate as the west stops selling drilling equipment to Russia. Venezuela is a perfect example of this working.
Liquefied Natural Gas
iShares Emerging Market ETF was the best performer this week. This index is market-cap-weighted, and larger companies have greater weighting. As you can see below, the index has been dropping over the past couple months. This is primarily due to the Chinese government starting to regulate technology companies. The top 5 markets which are China, Taiwan, South Korea, India, and Brazil make up 71% of the holdings.