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Santa Barbara economy prepares for market turmoil from Ukraine invasion

SANTA BARBARA, Calif. — The stock market is behaving wildly as a war between Russia and Ukraine grows more likely. But local financial advisor Arthur G. Swalley cautions investors to remain disciplined and not panic sell.

This week Russian President Vladimir Putin officially recognized two breakaway republics in Eastern Ukraine and pledged to support their territorial claims. President Biden denounced this as the start of an invasion by Russia, and the U.S. and Europe announced sanctions. The crisis has shaken stock markets already nervous about inflation and the likely prospect of interest rate hikes by the Federal Reserve.

Swalley, a founding partner and director of investments at Arlington Financial Advisors, an independent financial advisory firm in Santa Barbara, says long-term investors should stay calm. Given the rapid rise in fossil fuel and precious metal prices, and quick market reactions to each new detail of the unfolding crisis, it appears much of the recent market volatility has been forecasting the war and is not a permanent reaction to it, he said.

“At Arlington, we see this pre-event volatility as a common market response to uncertainty. Typically, as events actually unfold, uncertainty is answered and markets stabilize,” Swalley said. “A disciplined investment approach is critical at times like these to avoid overreaction and panic selling at the wrong time when short term stock prices are generally down and “safe” assets like cash and precious metals feel better.”

It can be hard to remain calm when oil is moving towards $100 a barrel and Santa Barbara drivers are feeling it at the pump. The last time prices climbed this high was in 2014 and 2015, not coincidentally when Putin annexed Crimea in his first move against the Ukraine. Russia is a massive energy exporter and benefits from higher energy prices. However, while the Ukraine does play a role, there are other factors pushing energy prices up, particularly post-vaccine consumer demand, Swalley said.

“We are driving more, going out to eat more, and traveling more as COVID-19 restrictions have eased and pent-up demand has been unleashed,” he said. “During the pandemic, many energy producers slashed output by shutting facilities. Reopening takes a lot longer than shutting down, so the lower supplies combined with higher demand has pressed energy prices higher.”

Consumer demand is also driving overall inflation, pushing businesses to pay more for basics like labor, materials and food. The Federal Reserve has said it wil respond by raising interest rates several times this year. Over the past 40 years, higher interest rates have successfully kept inflation in check. Interest rates are currently at historic lows.

Swalley said his firm believes uncertainty over the impact of interest rate hikes and inflation is a much bigger economic and market risk factor than the Ukraine crisis. The good news is, when the Federal Reserve has begun raising interest rates in the past there has never been a recession or bear market at the same time.

Another concern for the markets is the possible emergence of new, more dangerous COVID-19 variants. New outbreaks could put the brakes on the economy’s post-pandemic surge. However, Swalley and his team also see this as a moderate concern. While the risk cannot be completely eliminated, effective vaccines will hopefully be able to keep the effects of the disease muted and manageable, he said.

Overall, investors shouldn’t panic. Have a sensible, balanced, long-term investment strategy and stick to it, Swalley said.

“Each investor should have a disciplined plan which helps them avoid rash decision making,” he said. “Ideally, a good plan can help investors take advantage of the rash decisions of others.”

To learn more about Arlington Financial Advisors, you can click here.

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Blake DeVine

Blake DeVine is a multimedia journalist and sports anchor at News Channel 3-12. To learn more about Blake, click here.


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