It feels like every time we turn on the news lately, there is a new reason for investors to feel uneasy. From shifting energy prices to geopolitical tensions in the Middle East, the headlines can move faster than most people can process.
In our latest video, I sat down with Mike Greim to look past the immediate noise and answer the big question: Is the economy really going to tank this year?
Mike shares a helpful perspective on how we evaluate these kinds of events. Instead of reacting to every update, we look at the underlying engine of the economy—things like jobs, consumer spending, and interest rates—to see if the long-term path is still intact.
In this video, we discuss:
- How we weigh global events against the actual economic data
- Why certain sectors remain strong even when the market feels uncertain
- A simple strategy to keep your portfolio on track without having to make emotional decisions
Transcript
Chad: As we record this on March 5th, the headlines are dominated by the conflict in the Middle East. For many investors, the question isn’t just about politics anymore, it’s about how these real-time events are going to impact their portfolios and whether the economy can withstand this shock.
Impact of Escalating Conflict in the Middle East on Oil Prices and Economic Indicators
Chad: I’m Chad Chase, Managing Principal and Senior Advisor here at CGN Advisors, and with me is Mike Greim, Managing Principal Investments.
So, Mike, let me get to a few questions that I’m sure our clients are thinking about. As we see this escalating conflict in Iran and oil increasing in price, how do these weigh on the shocks of the traditional economic indicators like unemployment or consumer confidence?
Mike: Chad, I think that’s a great question. I think one of the things that is important in times like these is to take a step back and understand where these types of indicators were prior to the activities that are going on in the Middle East.
Fortunately, the overall economic environment was pointing toward resiliency. Overall growth was trending positive, and inflation was trending generally downward, which are positive signs.
Now, with what’s going on in the Middle East, specifically within the Strait of Hormuz, accounting for roughly 20% of the world’s oil and natural gas supply being effectively closed, we could expect to see some impacts on inflation ticking a little bit higher.
Goldman Sachs had a report out today indicating that expectations would be for global inflation to tick up, including the U.S. and the rest of the world as well, by maybe 2% to 5%, 0.2% to 0.5% points.
The Duration of the Conflict and Its Impact on Inflation
Mike: So some inflation tick up, but that really kind of also depends on how long this lasts. Is this a couple of weeks, a couple of days, or several months? We’re just going to have to pay attention and see how things go.
Chad: When you talk about inflation, I think about energy prices and that sort of thing. When we think about global inflation, are there areas of inflation that it’s going to have more of an impact on, obviously with oil, but then how does that affect interest rates?
Interest Rates and Long-Term Economic Impacts
Mike: I think we’re actually already seeing a little bit of expectations of higher interest rates on the longer end of the yield curve. When we think about things like U.S. Treasuries, we’ve seen yields tick up a little bit with some expectation of higher inflation.
That said, on the shorter end of the curve, we’re also still seeing some expectations that the Fed may still cut interest rates maybe even a couple of times this year. I think from our perspective, they’re going to have to kind of pause and see what happens here. Typically speaking, the Fed likes to look through oil prices as a reason for inflation as those tend to be cyclical in nature, something that kind of comes and goes. We’ve seen oil prices in the 80s recently, so this isn’t really new.
Natural Gas Prices and Their Effects on Global Economies
Mike: It’s not as big of a shock. Natural gas prices are probably a little bit larger shock, but not as much here in the U.S. as in other parts of the world. Certain parts of Europe that rely a lot more heavily on natural gas are certainly going to see a little bit more sting, if you will, to their wallet. We’re likely to come through this a little bit better off from an inflation perspective than maybe the rest of the world. Again, it kind of depends on how long this goes. So right now, we don’t see any reason to be concerned about escalating inflation like we saw a few years ago and quickly rising interest rates.
But that’s something that we’ll certainly want to pay attention to and might cause us to want to look at shorter-term bonds.
Energy Independence and Efficiency in the U.S.
Chad: Right. I think as the history of energy, the U.S. has become a little bit more independent than they have 20, 30, 40, even 50 years ago.
Mike: That’s true. And we’ve also become more energy-efficient. So our demands on the oil supply are lower than they were, relatively speaking. And that’s true globally, but definitely here in the U.S. And so we certainly are going to feel it at the pump a little bit. And we’re going to notice it as consumers because it’s something we pay attention to. But that doesn’t necessarily mean that all of a sudden we’re going to have an issue with the economy.
Equities and Stocks That May Perform Well During Inflation
Chad: So when I think of these times, I think about are there portions of the stock market that do well? Are there portions of a client’s portfolio that might do okay during this period of time?
Mike: We think it’s important to remember to take a broader view here, thinking in terms of making sure we don’t give up on assets that have the opportunity for growth, primarily equities in most clients’ portion of their portfolio.
Within stocks, there certainly could be types of stocks that can grow better through a higher-inflation environment. Things like energy, potentially industrials, commodity-related companies, like metals and other types of materials could benefit from that. What’s interesting is this is happening at the same time that we’ve had concerns about an AI bubble or AI causing issues with the rest of the economy.
AI and Tech Stocks: Opportunities and Challenges
Mike: We’ve seen some of the higher-quality tech companies perform less positively in many cases, pulled back pretty heavily already this year to where many of those companies also are starting to look more attractive. Maybe it’s a little early to just go jumping in, but certainly an opportunity to be taking a step into some of those companies if you don’t already own them.
Again, staying diversified makes sense and remembering to have some level of exposure to something that can be balanced in your portfolio. High-quality bonds, should there be a flight to quality, which we’ve seen a little bit of that as the dollar has started to strengthen again here through this environment. It could certainly be something to help with your portfolio.
Diversification and Portfolio Management During Volatile Markets
Chad: And I think that also goes back to when we talk to clients about their plan and short-term cash needs, to continue to make sure that those short-term needs from a distribution perspective are really set aside in bonds or money market or short-term type of bonds that can withstand some of this volatility and then let your long-term portfolio be your long-term portfolio.
Bucket Strategy for Managing Short-Term Needs During Volatility
Mike: I think that’s a great point. We work with a lot of folks where that bucket strategy makes sense in their situation; making sure they have cash available for those near-term needs to ride out some of these bumps we’re going to go through. Volatility is kind of the price we pay for long-term growth in the stock market. You can’t have long-term growth without the volatility. You’ve got to be able to withstand that. And making sure your portfolio matches with your plan and can sustain that.
Some clients’ portfolios don’t need the bucket strategy and that’s okay as well. So, again, this is a good opportunity to take a step back and look at your portfolio, make sure it does match with what your needs and objectives are for the next couple of years.
How to Rebalance Your Portfolio Effectively
Mike: And then from our perspective, it’s a good time to take advantage of one of the age-old tools we always have in our arsenal: rebalancing.
And so what is rebalancing? Well, it’s figuring out where to buy low and sell high. So trimming those assets that have maybe risen in price a little bit more than the rest of the portfolio in the short period of time and rebalancing back to the parts of the portfolio that maybe have not done quite as well. That tends to work pretty well over the long run if repeated in a very consistent fashion. So maybe some of those energy stocks that have risen because of oil prices would be a good time to trim some of those potentially and add those back to other parts of the portfolio.
Conclusion: Diversification and Long-Term Investment Strategy
Chad: Mike, I appreciate you joining us today. Those are great insights. I know this time can be overwhelming to some people, but I think we made some good points about how thinking for the long term and having a diversified portfolio really benefits you through this time.
If you have any additional questions, feel free to get in touch with your advisor here at CGM Advisors by emailing them or feel free to call our office at 785-340-3434. We appreciate you joining us.