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When Geopolitical Events Arise

As we started 2022 global stock and bond markets showed volatility and a short-term downward bias. In our recent commentary we explained The Federal Reserve has been transparent with its intent to begin as soon as March, a cycle of interest rate increases as the economy strengthens and inflation has risen. As a result of this, markets have been in a period of recalibration of risk and valuation which in turn has contributed to the volatility. With the more recent build-up of Russia’s military presence on the border of Ukraine and the threat of an invasion market volatility has remained elevated.

Calamos Wealth Management’s Investment Strategy Group has compiled data and looked back at different types of geopolitical events in an effort to frame the potential impact to the S&P500. Historically, we do see with these types of geopolitical events an initial market decline but the data suggests that decline tends to be rather transitory.

The chart below illustrates data from 21 such events. The S&P 500 declined on average -4.8% and was then higher, on average, 3, 6, 9 and 12 months later.

market shock events

Source: LPL Research, S&P Dow Jones Indices, CFRA, Bloomberg. Past performance doesn’t guarantee future results. The illustrated returns are reflective of the performance under the stated timeframe for the S&P 500 Index and beginning with the “event date”. The S&P 500 index is a stock market index that tracks performance of 500 U.S.-based large-cap companies from various sectors. It is widely considered a gauge of investor sentiment and its returns reflect the state of the American economy.

Geopolitical events tend to have a short-term impact to the market, and less of a long-term impact unless it leads to a recession. Calamos Wealth Management Strategy Group does not believe there is a near term threat of recession, to the contrary; the U.S. consumer is well positioned to propel corporate profits, the US economy is, as we have explained in prior notes, in a mid-cycle period of expansion and global Gross Domestic Product (“GDP”) is strong. History would suggest that trying to get in front of the market by selling in anticipation of a geopolitical event would be a mistake.

Should you be concerned about the impact to your portfolio, we encourage you to reach out to your Advisor or any member of your Calamos Wealth Management team to further discuss your personal situation and overall asset allocation.

Historical performance results for investment indices, benchmarks, and/or categories have been provided for general informational/comparison purposes only, and generally do not reflect the deduction of transaction and/or custodial charges, the deduction of an investment management fee, nor the impact of taxes, the incurrence of which would have the effect of decreasing historical performance results.  It should not be assumed that your account holdings correspond directly to any comparative indices or categories.

Past performance may not be indicative of future results. Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. The views and strategies described may not be suitable for all investors. References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations.

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