GLW Investment Strategy Commentary and Update - 2.28.2022

Dear Great Lakes Wealth Clients,

Our thoughts are with the Ukrainian people, and all who are now in harm’s way. We hope this conflict is resolved peacefully.

Despite the sobering events in Europe, we still believe the U.S. economy is strong - based on consumer spending, low unemployment, and wage growth. And, your GLW investment and advisory team have been tested during previous 'Black Swan' events – including The Great Financial Crisis in '08 and the ongoing COVID Pandemic – we feel confident in our ability to, once again, help you successfully navigate through these choppy and uncharted waters. As always, we will communicate any material changes to our outlook with you.

Further, in light of the geopolitical events, and the continued volatility we’ve seen in the markets, we thought it would be a good time to provide you with an investment update. This note is meant to provide you with a brief update, from an investment perspective, of what we are currently reviewing & analyzing, as well as what we are strategically & tactically recommending and implementing within our investment portfolios. As we’ve often said, “Volatility creates opportunity,” and successful investors will be the ones who are able to “see the forest through the trees.” Well, in addition to these two, at GLW we often remind ourselves of a quote from John Maynard Keynes, too. He famously once said, “When the facts change, I change my mind. What do you do, sir?”

The following information is an excerpt from Nasdaq Dorsey Wright (2.25.22) providing commentary and technical research to us regarding the current state of affairs:

By its very nature, geopolitical turmoil increases uncertainty and can result in heightened volatility in equity markets. While these events can have serious, life-changing consequences, from a purely financial perspective, the long-term effect on equity valuations is often modest. So, while we may experience large swings over the short-term, once the dust settles, the market often recovers from these events relatively quickly.

The September 11th Terrorist Attacks were one of the worst events in US history and the deadliest terrorist attack ever. In addition to the human toll, the attacks also resulted in billions of dollars of property damage and lost productivity – one study estimated that the GDP of New York City declined by more than $27 billion in the third quarter of ’01 through the end of ’02. However, the US equity market recovered fairly quickly. US stock exchanges were closed for several days following the attacks, only the third time that the NYSE had been closed for a prolonged period, the first time being in the early months of World War I and the second in March 1933 during the great depression.

On Monday, September 10, 2001, the day before the attacks, the S&P 500 had closed at 1,093. On September 17th, the first day of trading following the attacks, it closed at 1,039, a decline of just under 5%. The market continued lower over the next several trading sessions, ending at 966 on September 21st, a decline of more than -11.5%. It didn’t take long for the market to recover, however, as the S&P closed at 1,097 on October 11th, regaining all of the ground it had lost in a month’s time. A year later, in early September 2002, the S&P was trading in the high 800s and low 900s, well off of where it had been the prior year, however, this coincided with the decline following the dot-com bubble.

The 1990 Iraqi invasion of Kuwait has some notable parallels with the current Russia/Ukraine situation – an authoritarian leader invading a neighboring country threatening stability in the region with potentially significant consequences for the energy market. There have been a number of speculations about Iraq’s motives for the invasion. There was a dispute over a debt Iraq owed Kuwait for money it had borrowed to finance the Iran-Iraq war; Kuwait had been producing oil above its OPEC quota, contributing to lower prices which Iraq classified as an act of aggression, it had also accused Kuwait of stealing Iraqi oil via slant drilling. Finally, Iraq claimed that Kuwait had been an integral part of Iraq and was only a separate nation because of international interference. Whatever the motives, on August 2nd 1990, Iraq invaded, quickly overrunning the Kuwaiti military and occupying the country. The S&P closed down 1.1% on August 2nd and continued lower in the two subsequent sessions losing 1.9% and 3% on August 3rd and August 6th, respectively. The index finished in the green the next two sessions, ending the immediate drawdown. However, the S&P continued to trend down over the next two months, hitting a low of 295 in October, about 16.9% lower than where it had been prior to the invasion. It took until February 1991 for the S&P to retake its pre-invasion level. But, by August 1, 1991, the index was up 8.9% from where it had been a year prior.

More recently, there was the Brexit debacle, although dissimilar from the Russia situation as it was a peaceful, democratic process, it did threaten to disrupt trade and economic activity in Europe. In a referendum on June 23, 2016, UK citizens voted to leave the European Union in a result that surprised the world, not to mention then Prime Minister David Cameron, who had called for the vote and resigned shortly thereafter. On June 23, the S&P closed at 2,113. On the 24th, following the referendum results, it closed at 2,037, down about 3.6%, the index continued lower, losing another 1.8% in the next trading session on the 27th. From there, the index rallied, gaining 1.8% on the 28th and on July 8th, a little over two weeks after the vote, it closed at 2,130 recovering all of its losses. Of course, the UK market didn’t rebound so quickly and Brexit dragged on for years, but the overall effect on the domestic market dissipated quickly.

Of course, as with anything market-related, there is no guarantee that things will unfold in a similar fashion again. Even before the crisis in Ukraine, the market was grappling with high inflation and the specter of monetary tightening, headwinds that still exist. However, to the extent that the most recent bout of volatility has been caused by geopolitical worries, history would suggest the market has a decent shot of overcoming it in fairly short order.

We hope this adds a little more color and is a helpful reminder of some of the past geopolitical events, and the resulting market moves. However, to take an even deeper dive, we want to let you know that we are also continuing with our strategic long-term approach, coupled with our shorter-term trading tactics. Below, we are including the technical support and resistance levels for the broad markets (also from NDWA on 2.25.2022):

After opening deep in the red Thursday (2.24.22) following the Russian invasion of Ukraine, US equities staged a strong rebound. To begin the session the US futures dropped, with S&P 500 (SPX) futures trading down nearly 3% at their pre-market low; a move which came after the index closed down nearly 2% on Wednesday, meanwhile, Nasdaq-100 (NDX) futures bottomed just above 13,000, more than 1,000 points down from Tuesday’s high. Commodity prices spiked with WTI Crude (CL/) reaching $100 per barrel for the first time since 2014 while gold (GC/) topped out just above $1,975, its highest level since 2020, and nickel climbed to its highest level in a decade. All three major US benchmarks finished the day in the green, with the Nasdaq leading the way with a gain of more than 3%. However, the early decline did take out last month’s lows for all three indexes, so today we wanted to provide updated support levels.

The S&P 500 fell as low as 4,115 on Thursday, taking out its January low and breaking a spread triple bottom on its 20 point-per-box chart and one additional level of support at 4,180. The next levels of support on its chart now sit at 4,080 and 4,060, levels in reached in May of last year. Beyond 4,060, the next level of support on the 20-point chart sits at 3,860. The S&P closed just under 4,290, which if it held through Friday’s open, would result in a reversal up and establish support at 4,120.

On its 100 point-per-box chart the Nasdaq (NASD) broke a spread quadruple bottom when it was 13,000, taking out its January low as well as support from May of last year. The index fell as low as 12,588, briefly falling into bear market territory based on intraday prices and taking out an additional level of support. The next level of support on the 100-point chart sits at 12,400, its 2021 low. The index rallied nearly 900 points off its intraday low to close at 13,473. If it opens at or near this level it would also establish new support at 12,600.

As was the case with SPX and NASD, the Dow (DJIA) took out its January low on its 200 point-per-box chart on Thursday when it hit 33,000. The index bottomed in the 3,270s intraday, just above its next level of support at 32,200. Below the 32,200 level, support sits at 30,600 and 30,000, the index’s 2021 low. The Dow closed just above 33,200, like the other benchmarks, this would be sufficient to cause a reversal up on the 200-point chart, establishing a new level of support at 32,400.

As previously mentioned, we will continue to communicate any material changes to our investment outlook with you. Our GLW Team looks forward to discussing your specific situation with your during your next scheduled call. However, if you need anything before then, please do not hesitate to reach out to us.