How we’re adjusting portfolios for market turbulence

March 15, 2022

and Mike Kellner

Most of us are following, at some level, the very difficult Ukrainian war. Of course, the largest current concern is the humanitarian disaster and whether the war may escalate.

Not surprisingly, the war has created some turbulence in the U.S. and world stock markets. Since day one of the war, Feb 24, to Friday, March 11, the U.S.-based S&P 500 has posted -2%, and the global stock measure (which includes U.S. and international) has posted -3%.1 A key question becomes what further turbulence might we expect if the war continues or escalates?

Turbulence caused by conflict

Putting aside nuclear warfare (where money might mean much less and clean water much more), it is useful to look at stock market volatility during past conflicts. The investment house Blackrock summarizes several conflicts, below. In general, we see that after the initial shock, stock prices tend to get back to their fundamental drivers.

chart showing market rebound after periods of global turmoil

Sources: BlackRock, Student of the Market; Morningstar as of 2/28/22. *Returns shown for events prior to 1979 are represented by the S&P 500 PR Index , which shows principal returns only (excluding dividends), from 1/1/26 to 12/31/78. Returns for these periods would likely be higher if dividends were included. Returns for events in 1979 or later are represented by the S&P 500 TR Index, which shows total return (including dividends), from 1/1/79 to 2/28/22. Index performance is for illustrative purposes only. It is not possible to invest directly in an index. Past performance does not guarantee or indicate future results.


Oil & gas price increases, in a time of inflation

Most of us have seen price increases, whether at the store, the gas pump, for travel, etc. We are all likely aware that the pandemic created supply chain issues, temporarily increasing prices. Before the Ukrainian war, our outlook had been that current inflation near 8%2 might fall to 4% by year end as supply chain issues decreased, and then beyond that to 3%+/-.

Now on top of 8% inflation, we add higher oil prices caused by the war. Of course, this has increased costs for those who fill up at the gas pump (while electric vehicle owners have enjoyed much more stable pricing). Higher oil costs will also weigh on our economy because energy is a key input to industry. Before the Ukrainian war, our sense was that consensus U.S. economic growth was projected at 3.5% to 4%. After recent oil hikes, our expectation is that growth will moderate, possibly coming in at 2% to 3%. The economic impact of higher oil prices may be cushioned in several ways:

  • As people spend more money at the gas pump, they may reduce spending in other areas, which may reduce non-energy inflation.
  • The Federal Reserve, and other Central bankers, may raise interest rates a bit more cautiously than they intended to before the Ukrainian That said, we still expect the Federal Reserve to raise interest rates three to five times this year.
  • More oil may be obtained from U.S. domestic sources, and from Iran, Venezuela, and other oil producers.
  • Higher oil prices make investing in alternative energy more attractive. This may be supported by further government support of alternative energy, like that included in the Infrastructure Investment and Jobs Act passed last November.

Portfolio management considerations

Key portfolio management considerations are around volatility, opportunity (if/when problems recede), global positioning, and inflation protection. With that in mind, we’ve recently taken the following steps, as suitable, to match clients’ portfolio management to the current situation.

  • Before the war started, we reduced riskier growth stock positions and increased dividend-paying and value stocks. We took this step because we believed that our economy was moving from the high-growth phase to the mature phase when there is generally more volatility. This increased volatility protection has helped client portfolios over the last two to three weeks.
  • In 2020 and in 2021, we increased inflation hedges. Note that stocks themselves are also an inflation hedge.
  • Our client portfolios contain only a modest allocation to Europe, approximately 4% to 8% depending on the level of equities in a portfolio. We have kept European positions modest due to our projection of slower growth from Europe. This modest weighting has been helpful over the last two to three weeks.
  • While we so feel for the Ukrainian people, our responsibility is to steward client On Feb 24th, the day the war started, we bought equities on clients’ behalf.
  • We are no longer targeting an equity overweight of up to 5%. Instead, we are allocating per clients’ equity targets. Note that we are not yet seeing the signals of an upcoming recession.
  • We are adding commodities exposure given the pricing opportunities in commodities due to the conflict.

Please let us know your comments and questions. We know that this is a concerning time. Our heart goes out to all those impacted by the war. To help, our firm recently made a contribution to Alight, a Minneapolis-based nonprofit that indicates that their rapid response team is currently in Poland.


1. From Envestnet, Tamarac application. The S&P 500 represents approximately 80% of the investable U.S. equity market. It measures changes in stock market conditions based on the average performance of 500 widely held common stocks. It is a market-weighted index calculated on a total return basis with dividends reinvested.
2. The CPI rose 0.8% in February 2022, bringing the year-over-year gain to 7.9%.

Sign up for our newsletter

Read More About

Our Services

Investment Management
ESG Investing
Tax Reduction Strategies
Pre & Post Divorce Financial Planning
Dealing with the Loss of a Loved One
Retirement Planning
Estate Planning
College Accumulation Planning

Related Posts

Newsletter Sign-Up

Enter your info below to subscribe to our newsletter, which keeps you up to date on market trends and offers tips on wealth management.

You may unsubscribe at any time.

You have Successfully Subscribed!