The Week in Review: March 28, 2021
Uncomfortably Numb
A war is raging. Yet stocks have risen from recent lows. Ukraine is far from an ideal situation, and the direction combat may take is a big unknown.
But there have been no significant new developments that might negatively affect investor sentiment, and investors seem to be taking the apparent stalemate in stride.
It’s not that we are immune to wanton acts of aggression by Russia. We’re not. But investors look at geopolitical affairs through a very narrow prism. That is, how will an event or events impact the economy?
There’s no short-term solution at hand. It’s as if we’ve grown comfortably uncomfortable, or numb. Investors seem to slowly be incorporating a “new normal” into their collective outlook. You see, there hasn’t been a significant shock to demand for goods and services.
Having said that, let’s look at oil. We’ve seen wild gyrations since the war began.
The price jumped from about $90 per barrel, briefly rose to near $130, dropped to $95, and briefly notched $115 before settling at $113.90 on Friday (MarketWatch).
According to the International Energy Agency, Russia exports about 5 million barrels per day (mb/d) of oil and about 3 mb/d of refined products, or 8% of the world’s supply. It is the world’s largest exporter of crude oil and refined products.
An estimate from Energy Intelligence (EI) suggests that the dip in Russian petroleum exports to date has been somewhat smaller than the initial estimate of 3 mb/d, which coincided with a temporary oil price weakening after March 8.
EI suggests about 2 mb/d have gone “dark.” In other words, exports appear to be near normal, but much of the oil ends up in storage rather than landing at a refinery. Today, Russian oil is looking for buyers at discounts of up to $30 per barrel.
Price Spike
A 2–3% drop in oil supply may not sound like much, but in today’s tight market, it is significant. It is why we’ve seen oil spike higher after the war began. The attempt to find some type of equilibrium price in today’s incredibly uncertain oil market is difficult; hence, the volatility.
Plus, the effect of the Russian invasion is not limited to energy. Russia and Ukraine account for 29% of global wheat exports, according to EI, which is pressuring prices.
Last week, the Federal Reserve Bank of Dallas said that if the bulk of Russian energy exports slides off the market for the rest of 2022, a global economic downturn might be unavoidable. Currently, exports are down, but most exports continue to flow.
Final Thoughts
Last week, first-time claims for unemployment insurance fell to the lowest level since 1969, per the U.S. Department of Labor, and S&P Global reported an acceleration in U.S. economic activity in March. Put another way, businesses and consumers have yet to adjust spending patterns amid the carnage in Ukraine.
Against the uncomfortable backdrop of the war, investors are taking comfort in the growing economy but cautiously eye a Fed that is talking about aggressive near-term rate hikes.
If you have any questions or concerns, please don’t hesitate to let me know.
Two for the Road
For the 14 years ending 2021, only once did a majority of large-cap stock-picking (LCSP) mutual funds outperform the S&P 500, and that was in 2009, and only 53% outperformed the S&P 500. Last year was a particularly bad year; just 15% of LCSP mutual funds outperformed. Last year, the average return of all the LCSPs was 23.3%, not even close to the 28.7% posted by the S&P 500. —Elliot's Brief Blog for Tuesday, March 22, 2022
January 8, 1835 is the only day in history that the United States had no national debt. —History, January 8, 2019
This commentary reflects the personal opinions, viewpoints and analyses of the Stordahl Capital Management, Inc. employees providing such comments, and should not be regarded as a description of advisory services provided by Stordahl Capital Management, Inc. or performance returns of any Stordahl Capital Management, Inc. Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing in this piece constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Accessing websites through links directs you away from our website. Stordahl Capital Management is not responsible for errors or omissions in the material on third party websites and does not necessarily approve of or endorse the information provided. Users who gain access to third party websites may be subject to the copyright and other restrictions on use imposed by those providers and assume responsibility and risk from the use of those websites. Please note that trading instructions through email, fax or voicemail will not be taken. Your identity and timely retrieval of instructions cannot be guaranteed. Stordahl Capital Management, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
1. The Dow Jones Industrials Average is an unmanaged index of 30 major companies which cannot be invested into directly. Past performance does not guarantee future results.
2. The NASDAQ Composite is an unmanaged index of companies which cannot be invested into directly. Past performance does not guarantee future results.
3. The S&P 500 Index is an unmanaged index of 500 larger companies which cannot be invested into directly. Past performance does not guarantee future results.
4. The Global Dow is an unmanaged index composed of stocks of 150 top companies. It cannot be invested into directly. Past performance does not guarantee future results.
5. CME Group front-month contract; Prices can and do vary; past performance does not guarantee future results.
6. CME Group continuous contract; Prices can and do vary; past performance does not guarantee future results.