American markets today, Friday, viewed several hours before the 9:30 a.m. Eastern time opening appear mixed and understandably nervous as the S&P 500, Dow and Nasdaq are all in the red, although the S&P 500 is gaining in the pre-market hours.
Canadian markets appear poised to open down as the TSX 60 and TSX Composite are firmly in the red.
European markets are open at time of writing and have shifted into the green as I write this column and could stay there for the remainder of the trading day.
Amongst precious metals the safe havens of gold and silver are down.
Amongst currencies, the Canadian dollar is up while the Euro and British pound sterling are down against the American greenback.
This follows yesterday’s volatile trading session which saw the S&P 500, Dow and Nasdaq turn sharply downwards, then upwards, reversing the opening drop as United States President Joe Biden unveiled another list of sanctions against Russia after its full-frontal invasion of Ukraine. In what would have seemed unlikely at the beginning of the trading day, the Dow gained 92.07 points or 0.28% to close at 33,218.71. The S&P 500 gained 63.2 points or 1.5% to close at 4,288.7 and the Nasdaq gained an amazing 436.10 points or 3.34% to close at 13,473.59.as the market listened to news from Washington.
“The tough stand the U.S. and Europe (are) taking is sending a loud message to the financial markets that they‘re going to try to cripple as much as they can the Russian economy,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York. “From one perspective that’s positive,” he said in a Reuters report. At the same time, higher commodity prices are another outcome.
As the Russia-Ukraine war explodes and the fall of Ukraine appears a possibility, and as the markets – and the world – assess what will happen next investors can be forgiven for wondering where it leaves their portfolios, whether to stop new investments or even to sell current holdings. They can be forgiven for this since few have had to weigh the implications for their investments of such an all-out war. Nor have some had to ponder anything as desperate as Russian President Vladimir Putin’s apparent threat to use nuclear weapons if opposed. There are other unknowns that have a potential market impact, including whether the Federal Reserve Bank will slow its plans for rate hikes and the extent to which economic sanctions will affect Western companies doing business – or formerly doing business – with Russia. More broadly, we cannot yet measure the risks and toll on the global economy and its recovery from the pandemic. Nervous markets do not make for a smooth economic recovery.
In many endeavors, whether sport, politics or investing, there is a time to be aggressive, a time to be neutral and a time to be defensive. The proverbial trick is to know which approach is appropriate in a given situation and when to shift from one approach to another. At this time, investors should consider increasing their defensive positioning, according to Gavin Graham, Chief Strategy Officer at SmartBE Investments and a thirty-five-year veteran of money management in several countries. Graham anticipates higher energy and materials prices and advocates defensive holdings in sectors such as energy, materials, financials, and healthcare along with selected consumer stocks. In energy, he recommends Canadian Natural Resources, Suncor Energy and Imperial Oil. In materials, he recommends Agnico Eagle, Barrick Gold, Anglo Pacific and First Quantum. In financial institutions, he recommends Scotiabank, Toronto-Dominion Bank, Royal Bank of Canada, Manulife Financial, Sun Life Financial and Intact Financial. In healthcare, he lists Novartis AG, GlaxoSmithKline PLC and Johnson + Johnson and in the consumer category he picks Unilever PLC and Diageo PLC. These companies all qualify as defensive in several ways: they have steady corporate track records, solid dividend histories, deal in goods and services that we all need and have little connection to the warring countries.
Graham says that staggering investments in these categories with periodic purchases allows an investor to adjust to the rises and falls in share prices.
As well, holding assets such as gold and other precious metals that are not correlated to share prices will reduce overall volatility. At the same time, inflation protected bonds and short-dated government certificates with rates at over 1.5% also should provide balance and reduce volatility.
As investors, bankers, the markets, politicians and even casual observers wonder what will happen next, this is absolutely the time to invest defensively.
Related: Bring on the Red Team
Al Emid is a financial journalist, broadcaster and author with two books underway.
The Emid Report on Volatility 2022 – the next in the series -- is scheduled for release in Summer 2022 and his book on foreign investing is scheduled for release in January 2023.