• Menu
  • Skip to right header navigation
  • Skip to main content
  • Skip to secondary navigation
  • Skip to primary sidebar
  • Skip to footer

Before Header

Philadelphia Wealth & Asset Management Firm

wealth management

  • Why TBA?
    • Why Tower Bridge Advisors?
    • FAQs
  • Who We Serve
    • Individuals & Families
    • Financial Advisors
    • Institutions & Consultants
    • Medical & Dental Professionals
  • People
    • Maris A. Ogg, CFA® – President
    • James M. Meyer, CFA® – Principal & CIO
    • Robert T. Whalen – Principal
    • Nicholas R. Filippo – VP, Sales & Marketing
    • Jeffrey Kachel – CFO, Principal & CTO
    • Chad M. Imgrund – Sr. Research Analyst
    • Christopher E. Gildea – Sr. Portfolio Mgr.
    • Daniel P. Rodan – Sr. Portfolio Mgr.
    • Christopher M. Crooks, CFA®, CFP® – Senior Portfolio Manager
    • Michael J. Adams – Senior Portfolio Manager
  • Wealth Management
    • How to Select the Best Wealth Management Firms
  • Process
    • Financial Planning
    • Process – Equities
    • Process – Fixed Income
  • Client Service
  • News
    • Market Commentary
  • Video
    • Economic Updates
  • Contact
    • Become A TBA Advisor
    • Ask a Financial Question
  • We are looking to add advisors to our team. Click here to learn more!
  • We are looking to add advisors to our team. Click here to learn more!
  • Click to Call: 610.260.2200
  • Send A Message
  • Why TBA?
    • Why Tower Bridge Advisors?
    • FAQs
  • Services
    • Individuals & Families
    • Financial Advisors
    • Institutions & Consultants
    • Medical & Dental Professionals
  • People
    • Maris A. Ogg, CFA®
    • James M. Meyer, CFA – Principal & CIO
    • Raymond F. Reed, CFA – Principal
    • Robert T. Whalen – Principal
    • Nicholas R. Filippo – VP, Sales & Marketing
    • Jeffrey Kachel – CFO, Principal & CTO
    • Chad M. Imgrund – Sr. Research Analyst
    • Christopher E. Gildea – Sr. Portfolio Mgr.
    • Daniel P. Rodan – Sr. Portfolio Mgr.
  • Wealth Management
  • Our Process
    • Financial Planning
    • Process: Equities
    • Process – Fixed Income
  • Client Service
  • News
    • News & Resources
    • Market Commentary
  • Videos
    • Economic Updates
  • Contact
    • Become a TBA Advisor
    • Ask a Financial Question
wealth management

March 7, 2022 – While the war outcome continues down a path leading to a Russian occupation of Ukraine, the economic costs are becoming both starker and more apparent. Gasoline prices are rising close to $0.50 per week. If anything, the pace is accelerating. Wheat, aluminum, copper and palladium are spiking as well. These root commodity price increases will flow into a massive array of products. Inflation is quickly becoming more supply constrained than demand driven. The Fed’s weaponry can’t increase supply.

//  by Tower Bridge Advisors

Stocks fell last week for the fourth week in a row, a combination of inflation fears and the war in Ukraine. Bond yields fell amid a flight to safety.

The news from Ukraine is discouraging, to say the least, but it isn’t unexpected. Russia has overwhelming military advantages and continues to make progress in its efforts to overpower Ukraine, albeit much slower than desired. The Ukrainian resistance is heroic but there appears to be little it can do to stop the Russian advance. Western nations do not want to engage militarily precipitating a world war. Sanctions are its best weapon and herein lies the rub, economically. Sanctions isolate Russia. They will send the Russian economy into a tailspin. What impact that ultimately has on Russia’s war effort is open to speculation, but its impact on commodity prices, especially oil, wheat, and other commodities that Russia sells worldwide is quite clear. We all see it at the pumps. It will get much worse quickly. $4 gasoline will quickly become $5 gasoline. Food prices are rising and so are other key commodities from aluminum to copper. These increases will flow through our economy increasing costs for essentials, thus robbing all of us the purchasing power to buy non-essential items. As bad as it is for Americans, it is much worse for Europeans and Asians that do not have adequate local sources of oil, gas and other key commodities. Our markets have been falling 1-2% weekly. Those in Europe and elsewhere are falling faster. What is a headache here is a catastrophe overseas. It may be a price to pay to inflict necessary pain on the Russians, but it means tough times here.

Friday’s employment report was impressive, but it was also backwards looking. It represented data before any Ukrainian incursion. We won’t see that impact for another month or two. Right now, many Americans have built up savings to allow them to maintain lifestyles for a while, but not indefinitely. Many without savings will see the impact quickly.

We have witnessed similar events in the past. When OPEC first flexed its muscles in the mid-1970s, oil and gasoline prices spiked. A recession ensued. Today, higher oil prices alone won’t necessarily create a recession, but they will slow growth. One can use any projection of rising wages; they won’t be enough to offset the ripple effect of a 30-50% rise in the price of oil and related products. It isn’t just gasoline. Airfares will soar so will freight costs. Wheat price increases impact bread, cereals, cookies and spaghetti. Copper and aluminum impact the cost of homes and cars. It’s all pervasive.

The likely end game in Ukraine may be a military Russian takeover, followed by a messy prolonged occupation. Hopefully, the Russians don’t choose to extend further. I have no insight, but sanctions won’t disappear. What an economically crippled Russia means in the future is subject to speculation. The goal of sanctions is capitulation, but I can’t think of even one instance where that has been the outcome. We aren’t here to speculate on military or political outcomes. We focus on the investment environment. It is quite clear at the moment that earnings estimates for 2022 will most likely have to be lowered as commodity spikes squeeze margins and kill demand. An early look at 2023 would suggest lower forecasts as well. If there is “good” news, it is that economic deterioration lessens the need for the Fed to step in and raise interest rates aggressively to lower demand growth. The Fed is still likely to start raising rates in March (by 25 basis points). What happens after that will depend on economic data. If the pinch of higher prices diminishes demand, then inflationary pressures, beyond the impact of Russian-related commodity price increases will lessen. The Fed may continue to raise rates slowly but the rise in commodity prices related to the Ukrainian war are not demand driven, but rather to a shortage of supply. The Fed’s inflation-fighting task is to soften demand. It has little ability to impact supply. Indeed, short-term, the Fed will be more focused on maintaining market liquidity than accelerating any fight against inflation.

Thus, let’s not kid ourselves. The last two weeks have changed the near-term economic picture. The situation in Ukraine may reach a military conclusion in a matter of weeks or it could take far longer, but the economic impact will be more far reaching. If Russian oil and wheat can find their ways to market, prices may settle back. If economic and banking sanctions instituted by the West restrict the flow of goods, prices will remain elevated. There is some excess OPEC and U.S. oil capacity that could be an offset, but it will take weeks or months to find a balance. It is unlikely that elevated prices are permanent, but they could endure long enough to have material economic impact.

Does this mean recession is inevitable? No. Markets are still absorbing years of monetary and fiscal stimulus. Demand today is very strong, but the odds of recession rise. It will take a few months to see the new economic world order. In the meantime, there will be elevated volatility in commodities and the stock market as events unfold and evidence of a new world order emerge.

The spike this time isn’t the 1970s all over again. There aren’t gasoline lines. The U.S. is reasonably self-sufficient in key commodities to keep operating without material disruption, but pain overseas will impact multi-nationals and crimp overall demand. Uncertainties will lower job listings and could eventually lead to some unemployment. Don’t read too much into the numbers just reported for February. Those all occurred before the war. It will be March, April and May numbers that will begin to tell the tale. Given robust accumulated savings, damage may not appear right away. Maybe it never will if prices stabilize or recede. Eventually, higher prices reduce demand and change behavior. In today’s world, higher gasoline prices will drive some back to their home offices, for instance.

For now, all we can say is that the war has created change. Most of those changes are negative economically. We have no data yet to calculate the impact. I don’t want to overstate the negative, but I don’t want to understate the uncertainty. Before the invasion, markets were obsessed with the impact of demand driven inflation and the Fed’s likely path to reduce it. The war has changed the landscape. Inflation is still the problem, but for different reasons. Supply constraints caused by war and sanctions will spike prices faster even if demand recedes. Even if Russia achieves its military objectives, it faces a messy occupation. Economically, it is now isolated from the West. That means supplies to Europe are gone. If supply falls faster than demand, it means higher prices. Less supply, less demand, and higher prices is a nasty combination. I haven’t even discussed the threat of cyber attacks.

Long-term, balance will get restored. It always happens. This war will come to an end, but sanctions almost certainly will stay in place. It will take time to find a new normal. Significantly tighter monetary policy may have to wait. Fortunately for many, the heating season is coming to an end. That will allow some time to reset. Higher gasoline prices will adjust our daily behavior. Demand for fuel will drop. High prices will bring on new supply, but this all takes time. If you simply look at the military picture today and compare it to late last week, it doesn’t look very different. The economic impact is becoming clearer as we watch gasoline prices rise close to $0.10 per day, food prices soar, and 1.5 million refugees resettle outside Ukraine. Markets generally don’t like change and they certainly don’t like this change.

Today, former tennis star Ivan Lendl is 62. Bryan Cranston turns 66.

James M. Meyer, CFA 610-260-2220

Tower Bridge Advisors manages over $1.7 Billion for individuals, families and select institutions with $1 Million or more of investable assets. We build portfolios of individual securities customized for each client's specific goals and objectives. Contact Nick Filippo (610-260-2222, nfilippo@towerbridgeadvisors.com) to learn more or to set up a complimentary portfolio review.

# – This security is owned by the author of this report or accounts under his management at Tower Bridge Advisors.

Additional information on companies in this report is available on request. This report is not a complete analysis of every material fact representing company, industry or security mentioned herein. This firm or its officers, stockholders, employees and clients, in the normal course of business, may have or acquire a position including options, if any, in the securities mentioned. This communication shall not be deemed to constitute an offer, or solicitation on our part with respect to the sale or purchase of any securities. The information above has been obtained from sources believed reliable, but is not necessarily complete and is not guaranteed. This report is prepared for general information only. It does not have regard to the specific investment objectives, financial situation or the particular needs of any specific person who may receive this report. Investors should seek financial advice regarding the appropriateness of investing in any securities or investment strategies discussed in this report and should understand that statements regarding future prospects may not be realized. Opinions are subject to change without notice.

Filed Under: Market Commentary

Previous Post: « February 2022 Economic Update – The New Normal?
Next Post: March 21, 2022- The Fed did what it said it would do, economic growth remains intact, and the war isn’t getting worse by leaps and bounds. That set the table for a strong rally in stocks. Is the bottom in? Or is this just a bounce? The answer may be a little yes and a little no. For some stocks, the bounce might be over, but if the economy stays solid, there remain plenty of opportunities. »

Primary Sidebar

Market Commentary

Sign Me Up!

Latest News

  • September 25, 2023 – While lower prices in the wake of the Fed’s hawkish post-meeting news on Friday might have started to create some bargains, stocks remain expensive if one assumes rates will stay elevated for an extended period of time.
  • September 22, 2023 – Stocks fell sharply, continuing a negative reaction to the outcome of Wednesday’s FOMC meeting. While rates remained unchanged, the committee expressed a bias toward increasing rates again at the next meeting that ends November 1. In addition, the dot-plot of projections from Committee participants suggested only one (net) rate cut between now and the end of 2024. While short-term rates barely budged, yields on 10-year Treasuries rose by about 15 basis points, suggesting tougher economic conditions ahead, higher rates for longer and, by extension, lower P/E ratios. Lower P/Es mean lower stock prices.
  • September 20, 2023 – Today concludes the 2-day FOMC meeting. No change in rates is expected but investors will parse every detail of the post-meeting releases as well as comments from Fed Chair Jerome Powell. Recent data suggests both inflation and the economy are slowing. The ideal soft landing is still within reach, but it is also quite possible that the economy might slip into recession over the next few months.
  • September 18, 2023 – Markets are directionless, torn between better economic activity and an increase in storm clouds from labor unrest to China. What is crucial is the future trend for interest rates. Investors will parse this week’s FOMC meeting for clues, but probably won’t get a much clearer picture for their efforts.
  • September 15, 2023 – Auto workers are out on strike. So far, markets don’t care. They probably won’t care overall, unless the strike becomes extended. Elsewhere the public offering of ARM Holdings signals a healthier IPO market. Instacart is likely next. Traders are waking up from the late summer doldrums, but valuations, high bond yields and rising oil prices probably suggest more sideways churning ahead.
  • September 13, 2023 – Today’s focus will be on the August CPI report. The headline number will be disturbing thanks to higher oil prices, but core inflation is likely to stay muted. Bond yields have been creeping higher and are back at the top end of recent trading ranges. Any breakout to higher yields would be disturbing to equity markets.
  • September 11, 2023 – Spectrum and Disney are locked in a battle over how TV content is delivered to the home. Both want a bigger economic piece of the pie. The battle reminds us of the strike by actors and screenwriters. All are fighting for a bigger piece of a smaller pie. These battles are part of a process, one where the consumer will be the winner in the end. But before the wars end, there will be lots of carnage as economic reality sorts out those parts of the puzzle that cannot survive.
  • September 8, 2023 – The reported impending ban on the use of iPhones in Chinese government offices sent Apple’s shares reeling and infected the entire tech sector, sending stocks lower this week. While China’s government hasn’t officially commented, this news is yet another sign of the deterioration of economic cooperation between the U.S. and China. Economically, that can’t be a good sign.
  • September 6, 2023 – Stock prices remain slaves to interest rates. A spike in rates the past two days has put downward pressure on stock prices once again. Higher oil prices add further pressure. With little economic or corporate news coming that should change sentiment, the key data in the weeks ahead will focus on the pace of decline in inflation readings.
  • September 1, 2023 – We all hear about the lag effects of higher rates. That lag varies from sector to sector. When rates first started to rise, it affected home buyers immediately. But for those who financed or refinanced debt in 2020 or 2021, the impact was delayed. For some, that cheap debt is starting to come due. Over the next couple of years, debt service is going to become a bigger and bigger cost of doing business.

Footer

Wealth Management Services

  • Individuals & Families
  • Financial Advisors
  • Institutions & Consultants
  • Medical & Dental Professionals

Important Links

  • ADV II & CRS
  • Privacy Policy

Tower Bridge Advisors, a Philadelphia Wealth and Asset Management firm, is registered with the SEC as a Registered Investment Advisor.

Portfolio Review

Is your portfolio constructed to meet your current and future needs? Contact us today to set up a complimentary portfolio review, using our sophisticated portfolio analysis system.

Contact

Copyright © 2023 Tower Bridge Advisors

Philadelphia Wealth & Asset Management, Registered Investment Advisors

300 Barr Harbor Drive
Suite 705
West Conshohocken, PA 19428

Phone: 610.260.2200
Toll Free: 866.959.2200

  • Why Tower Bridge Advisors?
  • Investment Services
  • Our Team
  • Wealth Management
  • Investment Process
  • Client Service
  • News
  • Market Commentary
  • Economic Update Videos
  • Contact