IN REVIEW

Global equity markets sold off in the 1st quarter of the year as the conflict in Ukraine created a risk-off environment. U.S. equities were the relative winners, declining just -4.6% compared to a -5.3% return for international developed market equities. Global credit markets were also down on the quarter as global central banks begin to raise rates in the face of rising inflation. As economies around the world were set to emerge from their pandemic malaise, Russia’s invasion of Ukraine mired the global growth outlook. Markets now must digest the increasingly uncertain paths for commodity prices, economic growth, and monetary policy. The near-term implications of the Russian invasion for the U.S. are increased commodity prices, specifically energy prices, feeding into existing inflationary pressures. Longer-term, the risks are a new cold war between Russia and the West which would be another blow to globalization. Meanwhile, central banks must navigate a tightening cycle to mitigate inflation but without completely stalling demand. Despite these risks, we still believe the U.S. economy will expand consistent with the long-term trend as the economy is relatively insulated from the conflict, consumer balance sheets remain healthy, and the labor market shows no signs of weakness. With that backdrop, risk assets should continue to do well as volatility eventually settles down and investors refocus on fundamentals and corporate earnings.

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