Christian Ledoux, Director of Investment Research at CAPTRUST, talks about the ripple effect Russia's invasion of Ukraine is having on U.S. markets and outlines ways investors are navigating volatility. 

Opening Bell

How Geopolitical Uncertainty Is Impacting Investor Sentiment 

and for more insight on early morning trading. I'm joined by christian Ledoux, director of investment research at Cap trust Christian despite today's activity, the SNP is on pace to finish the week down about 1%. What do you make of the volatility, especially closer to the end of this week and also in the near term, do you think investors should rebalance their portfolios to account for the geopolitical conflict that we're seeing between Russia and Ukraine? Well, thank you for having me today asia and Good Morning. I think what you're seeing from yesterday's trading in the reversal that we saw in the market yesterday is that the market got some certainty. The market always hates uncertainty. And what happened yesterday is Putin played his hand and we know from the biden response that the NATO allies and the US are going to be putting up a firm line at the NATO countries. So the market did like that certainty factor, there is also a silver lining to the action yesterday is that we'll probably see the Federal Reserve be able to take their foot off the gas in terms of interest rate increases for the rest of this year. It's going to be harder to do that in the, in the light of probably a small but not insignificant impact to global economic growth as a result of this conflict. Yeah, I'm glad that you mentioned that I want to talk about the Fed in just a bit because we've had analysts on the show who had anticipated the Fed could go the other way and be even more aggressive yesterday, It's quickly changing as we get a clear picture. Um, but talking about export volume of Russian gas To Europe, that rose 38% yesterday and analysts predict it could be around 24% today. Commodity importers also concerned over Russia's titanium dominance, which is needed to make things like jet parts. What's your outlook on the oil and gas industry in the next quarter, the next four months? And how do you see these commodity price shocks, long lasting impact beyond just this quarter? Well, Asia, that's unfortunately the biggest problem of dealing with Russia as it is for lack of a better word, the world's largest gas station and they do supply a lot to europe, europe did put themselves in a bind over many years by relying a little bit too much too much on that. But I think we have a path forward where countries like the United States, who are rich in natural gas can start sending gas to europe and there are other sources being developed in the, in the countries of the region, it's going to have a short term bite. But you did see a reversal in oil prices yesterday. And I think a lot of that is because the sanctions that have been levied on Russia to this point have intentionally avoided some of these commodities. There are some other key commodities coming out of Russia wheat, for example, and palladium, these are things that it would certainly damage the U. S. Economy a slight amount but the rest of the world more if we put sanctions on those and the personal consumption expenditures price index that rose 5.2% year over year versus 5.1% expected. While there was no change in personal income spending was up 2.1% month over month. What does this data signal with consumers willingness to pay for higher prices? And what is your outlook on spending this quarter? I know we've been looking at this quarter is kind of the rebound with so many different sectors being able to finally pick up, we've seen a fade away from the pandemic even sentiment here domestically, when we look at sectors like travel and hospitality, how might that change moving forward? Well inflation, as you pointed out, is a key element going on in the our economy and globally I think the U. S. Consumer has bared it very well to this point and one of the key metrics that we track here is the corporate profitability rate. one thing if companies can pass through raw materials inflation and labor inflation to the end price and you know that consumers are able to bear it and up until now at least they have been doing a very good job of doing so. Don't forget that there's a lot of money still on consumer balance sheets from the pandemic with the generous fiscal programs and we think that that can carry us for another couple of years until the economy gets on stronger footing, christian. You mentioned the Fed could take its foot off of the gas in terms of these interest rate increases. You know, the Fed has mostly stayed firm on the size and frequency of interest rate hikes in response to inflation and economic growth getting, getting the jobless numbers just yesterday. Do you see these recent events and also the spending data as a cause for the central bank to act more aggressively between March and june meetings? Well, I can't trust we've been following the inflation numbers and and its its trajectory very closely. And I think the conclusion we've come up with is that we're going to see an intercept point probably maybe late summer where inflation numbers, the headline numbers are going to be coming down and that's mainly because of last year. So at this point last year Inflation was very low. So the comparison is very easy as we say in the business. And the big numbers are the result of that when you start comparing to an inflation rate of five or 6% where we were in the summer of last year, it's going to be harder for an inflation number of seven or 8% to stay up there. So we think that that headline number is going to come down meanwhile the Fed is coming up from below on interest rates and at some point they are going to be hitting that sweet spot and that's where we think the Fed is probably going to pause and see where the data takes them. And that could be a good sign for the economy and stock markets going forward more or less volatility as a result. Yeah. And speaking to the markets, the NASDAQ is down over 2.8% over the last four weeks. That's 13.6% year to date. What sectors are names within tech? Do you see growth potential? You know, we've already seen it when it comes to defense stocks. Well boy, there is a lot of turmoil under the covers here with the markets, you know the S&P 500 for example is down about 10% for the year And or from its recent high but there's about one in four stocks is down over 50% from their highs and the average stock out there is down almost 25%. So you really gotta pick and choose out there. I think the first thing to stick with is earnings and stick with some of the big big companies in tech. You got Apple google Microsoft. These are great companies that produce solid earnings and have growth outlooks that are undisturbed by what's going on in the world economy. Alright, christian Ledoux, Director of investment research at Cap Trust, thank you so much for that insight