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When the COVID-19 crisis struck, authorities quickly took steps to alleviate the fallout. The U.S. Federal Reserve eased monetary policy and made ample liquidity available. Federal and state governments introduced measures to assist impacted individuals and businesses. As time wore on, uncertainty receded, markets rebounded, and the U.S. economy recovered from the initial shock.

News of Russia’s invasion of Ukraine dominates recent headlines. At the time of writing the S&P 500 was down -2% at the market open but has recovered and is down -1%. European stock markets are down between -3% and -5%. Brent Crude oil prices jumped 6% and gold is up 10%. Technology stocks, as represented by the Nasdaq index, dropped 3% at open but recovered to be down modestly -0.4%. But how should investors think about military conflict and their portfolios?

Our market and economic outlook for 2022 could be compared to a backcountry hike in the mountains – the scenery is nice but there are risks. Investors have a favorable economic backdrop with almost all developed economies in expansion. However, bad weather threatens with inflation at a 40 year high, the potential for higher interest rates and stock market volatility, high valuations for stocks and bonds and the continuing impact of COVID-19 on labor and supply chains. Investors can adjust their equity and bonds holdings to respond to these threats and consider alternative assets that may provide protection from down markets while offering growth.

I believe many investors today are like gold medal winners during competition: anxiously watching the scoreboard to see if things will turn out well or something unexpected will happen. Will COVID variants, inflation, or a stock market crash ruin a period of great twelve month returns? We think the economic and market trends are positive but higher valuations and the threat of higher inflation may mean investors should make some adjustments.