Let’s take a collective deep breath. September, which historically is the worst month for stocks, has passed – and it did not disappoint! We saw 10% declines in U.S. markets, while Canadian stocks, buoyed by energy and basic materials, lost less than half that amount.

For the past two months financial markets have been stuck in a trading range that runs the gambit between fear and greed – a classic tug of war buttressed by vague macro-economic scenarios that are, at best, subjective.

Efforts to pinpoint the terminal interest rate[1] vary depending on the latest iteration of ‘Fed speak’. Currently, market participants seem to have priced in an interest rate trajectory that will culminate somewhere between 3.75% to 4.25%.

are causing the imbalances.

What impact are global transportation bottlenecks having on prices along the supply chain? How much of the demand surge is a desperate attempt by consumers to feel normal again? What impact is the Ukraine war having on food and energy prices? Did government sponsored pandemic relief programs provide too much stimulus? Each of these factors has an impact. The chart to the right is our best guess as to the relevancy of each of these components.

As the Russian invasion of Ukraine grinds on with no apparent solution through international diplomacy, some commentators are wondering if an end to the conflict could come if Vladimir Putin is removed from power.

Even U.S. President Joe Biden in a speech delivered in Poland said Putin “cannot remain in power.” Despite White House attempts to downplay the rhetoric, President Biden was steadfast that he was “not walking anything back!”

Many investors are starting to feel uncomfortable watching their investment portfolios decrease in value as markets continue to decline from the November 2021 highs. A review of past market corrections can provide us with some general guidelines to help manage expectations. How much more selling is yet to come, however, and how long it will take for the markets to turn around is still largely unpredictable.

The performance of stocks through April month-end was not only painful, but it was also significant. The first four months of 2022 marked the worst January to April swoon for US stocks in history. The S&P 500 Index ended April down 13.31% from its’ December 27th, 2021, peak. The tech heavy Nasdaq composite index is off 23.18% since its November 15th, 2021, peak, officially putting growth stocks in bear market territory.

The Ukraine war, fallout from sanctions, hawkish sentiment among global central banks and gyrations in commodity markets add layers of uncertainty to what was already an uncertain environment for financial markets.

In this setting, forecasts are, at best, conditional and rest on a foundation of radical uncertainty (see article “Stuff Happens”). While we can quantify risk (i.e., options price implied volatility) and then assign probabilities (i.e., trading ranges) using statistical analysis, uncertainty, defined as ‘unknowable unknowns’, cannot be measured. That fact severely limits our confidence in evaluating potential outcomes and appropriate investment strategies.

Investopedia characterizes stagflation as a period of slow economic growth (declining GDP) and relatively high unemployment — economic stagnation — accompanied by rising prices – inflation.

There are many third-world examples that lay bare the economic death spiral associated with stagflation. Lebanon and Venezuela come to mind, and heavily-sanctioned Russia will not be far behind.

On February 24th, 2022, Russia invaded Ukraine. It was an unprovoked invasion orchestrated by a bellicose dictator who wanted to decapitate an emerging democracy. It is the standard playbook for frightened Dictators ruling a disenfranchised population. You cannot have ordinary Russians questioning whether the Ukrainian experiment with capitalism is a better model than a Soviet style autocracy?