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Russia-Ukraine Conflict is NOT the End-Game for Stocks: Why You Should Ignore Macro

"We don't prognosticate macroeconomic factors, we're looking at our companies from a bottom-up perspective on their long-run prospects of returning."

- Mellody Hobson, President and co-CEO at Ariel Investments

Ironhold Capital is excited to discuss some reasons why the Russia-Ukraine conflict and inflation are not detrimental to the long-term success of investors in the markets.

Detailed below are the micro and macroeconomics of the situation and the best strategy for navigating the markets through times like these.

The Russia-Ukraine conflict has been a burden on the markets for a large portion of this year. Vladimir Putin’s decision to spontaneously invade Ukraine with the rationale of gaining back territory that was once theirs, yet independent from that nation for over 30 years, has many fearing global involvement. The Russian leader has directly threatened Western governments, which includes the United States, about their support of Ukraine through the invasion and the sanctions imposed on Russia. Additionally, the nation is incredibly rich in natural resources, exporting a notable amount of energy, metals, and agricultural products for global consumption. This disruption has already started impacting supply chains, inventories, and production levels worldwide.

It is unlikely, however, that this war will escalate to the same magnitude of involvement for the United States as World War II, the Vietnam War, or the Cold War. The United States and other NATO members have clarified that they do not want to be militarily involved. Instead, the U.S. is contributing through economic sanctions and diplomatic relations. While the markets have responded negatively to the invasion, it can be seen throughout history that there is always a recovery from geopolitical tensions and minimal long-term impact on markets and economies.

As a result of the tensions, there has been an impact on global food and energy prices. Russia and Ukraine are both large producers of each good, but Russia’s exports are down due to sanctions, and Ukraine’s primary focus is on defending their country rather than their economy.

However, part of the beauty of capitalism encompasses the dynamic of producers taking advantage of a gap between supply and demand. Energy and food supplies will recover as these alternative producers increase their output to match unmet demand. Therefore, these problems are short-term and should not be weighted heavily in the decision to make an intelligent investment.

Additionally, the Fed will likely continue to raise rates, similar to their policy decisions in the 1970s. CPI nearly hit 15% twice over that decade, inducing rates to rise to almost 20%. With the current CPI being 8% and only subject to increasing pressure from the Russia-Ukraine conflict’s impact on growing food and energy prices, 25 basis points is only the start of rate hikes from the Fed.

The U.S. economy is now in a unique situation after the COVID-19 pandemic, with inflationary pressure, rising rates, and war in Europe. During the Korean War, there were high levels of inflation, reaching just under 10%. Yet, with direct United States involvement in the war during this period, the stock market continued to rise. The monetary policy during this period was focused on controlling inflation, with multiple interest rate hikes. This shows that there are exceptions to the common belief that the stock market always declines during war and inflation.

In other cases, war has been more detrimental, yet not catastrophic, to the markets. During World War II, the stock market dipped over the first two years of war, but the markets surged during the final three years. The stock market finished the war at nearly equivalent levels to where it started. Still, the monetary policy over that period was expansionary as the Fed lowered rates and promoted spending. This displays the market’s ability to recover through periods of war, but monetary policy during this time differed from what is presently needed to control inflation.

These two examples of war’s effect on the stock market and the continually increasing chart above show that macroeconomics has minimal impact on the markets over time. Long-term, the market always recovers. Additionally, events like inflation, rising rates, and war are immaterial if a business is high quality and managed correctly.

Coca-Cola is an excellent example of a long-lasting, outperforming, and excellently managed company. Their stock has continued to beat expectations for a century – this is not due to favorable macroeconomics over that time frame, but rather how well the business had been run. Their earnings power and excellent management over decades have made the company a great investment, and that trumped whatever happened with inflation, global conflict, or other macro events over time. This can be seen in the chart below, detailing the company’s stock history over the past sixty years.

The business has fluctuated over time, but over the sixty years observed in the chart, it can be seen why this has been an excellent long-term investment. Coca-Cola has prevailed through challenging macroeconomic events - World War II, the Vietnam War, the dot-com bubble, and the credit crisis - yet it has generated tremendous returns. A number of bad things could happen to an economy; however, if a company’s underlying business is strong and is coupled with a good management team, it’s likely to be an excellent profitable investment.

It is expected for the economy and markets to go through booms and busts, but it should be noted that there has always historically been a recovery, even throughout periods of uncertainty such as those present today. The best way to survive during times like these is through investments in high-quality businesses with excellent microeconomics. As previously stated, it is tough to predict what will happen to the economy on a large scale, but looking at companies through a microlens adds far greater certainty to the success of an investment.

By: Siddharth Singhai


This White Paper expresses the views of the author as of the date indicated and such views are subject to change without notice. Ironhold Capital has no duty or obligation to update the information contained herein. Further, Ironhold makes no representation, and it should not be assumed that past investment performance is an indication of future results. Moreover, wherever there is the potential for profit there is also the possibility of loss.

This White Paper is being made available for educational purposes only and should not be used for any other purpose. The information contained herein does not constitute and should not be construed as an offering of advisory services or an offer to sell or solicitation to buy any securities or related financial instruments in any jurisdiction. Certain information contained herein concerning economic trends and performance is based on or derived from information provided by independent third-party sources. Ironhold Capital Fund 1, L.P. (“Ironhold”) believes that the sources from which such information has been obtained are reliable; however, it cannot guarantee the accuracy of such information and has not independently verified the accuracy or completeness of such information or the assumptions on which such information is based



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