From a fundamental perspective, Palombi is still constructive on Europe, which he strongly believes will recover with some help from still-low interest rates. Still, he also acknowledges that the reverberations of the conflict can be hard to ignore, especially as other concerns weigh heavily on investors’ minds across the world.
“I think another big reason to consider why markets are so jittery is that the Federal Reserve is raising interest rates and embarking on quantitative tightening when there’s so much uncertainty,” Palombi says. “I’m convinced that if it were not for the Fed and other central banks hiking interest rates, and investors’ fear that the economic cycle might be curtailed, I don’t think the volatility and the drawdowns would have been this severe.”
Another wildcard on the global geopolitical scene is China, whose reputation for economic dominance has faltered over the past few years from headlines about regulatory crackdowns, vulnerability in its real estate sector, and most recently the impact of its zero-COVID approach on the country. As the second-largest economy in the world, China has been an important hub in the global economy both as a manufacturer and an importer, so the shutdown of key ports has contributed significantly to ongoing supply-chain challenges.
Palombi is optimistic about the prospects of the country, however, as he focuses on its declining case counts and loosening restrictions in Shanghai and Beijing. And with the Chinese market down by well over 50%, he sees a significant opportunity to participate in a potential recovery.
“Once China reopens, we should see supply chains come back online, and that should take some pressure off of some of the inflation narrative that we’re seeing,” Palombi says. “As Wayne Gretzky once said, you’ve got to skate to where the puck is going, and not where the puck has been. And I think we’re starting to see a different narrative play out here.”
