I was taking a look at how the S&P 500 has done in recent history and I found that in the last six months, it has moved just 0.9% lower. But this doesn’t tell the whole story because it has dropped 7.2% year to date, -5.1% in the last three months and appreciated 6.0% in the past month. This seems to indicate that the negative sentiment at the start of the year may be dissipating somewhat. But does this make sense? Let’s see.

The first major cause for concern is inflation. As far as that is concerned, the Fed is taking cautious steps. This is exactly what it should be doing in a situation where rate hikes intended to raise prices and discourage consumer spending could be overdone. In which case, there would be a negative spiral down into a recession, which is absolutely what we don’t want.

The second reason that is also contributing to the inflation and is not that easily taken care of is the increase in cost of production for many companies. In some cases, this relates to supply chain issues; in others, it’s also or only other factors like the availability of labor.

The US is currently in a condition of full employment (sub-4% unemployment) while the number of available jobs remains at record highs. New jobs are becoming available in arts, entertainment and recreation; educational services; and federal government; while finance and insurance and nondurable goods manufacturing are rapidly filling positions and recording declines.

The third reason for concern is the Russia-Ukraine war, which is squeezing availability of raw materials and commodities that were shipped from the region. Russia in particular is a leading supplier of not just oil and gas but many other key commodities like wheat, semi-finished iron, nitrogen-based fertilizers, cobalt (used in batteries including of EVs), vanadium (used in steel making), as well as gold, nickel, platinum, copper and a host of other commodities.

A trade embargo of Russia is unlikely to be easy on the rest of the world. And Russia has itself cut back on things like timber to those opposing its actions.

So currently, we are in a situation when prices of everything look like they can only move higher. We may blame the Fed for having fallen behind in its monetary policy, but nobody could have foreseen all the problems in the world today. So it makes sense to take a cautious path because there’s nothing else to be done.

To answer the question on whether it is rational to breathe a little easier now, the answer is both yes and no. Yes, because both the problems and the action to be taken are better defined today. Also, with employment remaining high, buying power remains, which is exactly the situation needed to hike rates and ease into a situation of relatively lower demand without triggering off a recession.

And no, because while we’re aware of the problems and the U.S. has taken the step of releasing oil reserves, the situation is unlikely to get sorted out any time soon. Moreover, there are still indications that this could grow into a bigger war with more countries participating. And the possibility of China annexing Taiwan (and therefore gaining control over the ton of chips that America needs) also can’t be ruled out.

There are two ways to play the risk that obviously exists in the market right now. One is putting your money into safe assets like blue chips and bullion (or its derivatives). The other is to invest in stocks that are somehow gaining from the situation. By that I mean anything that Russia usually supplies to the world (for example), because prices of these things are definitely going to move higher. And companies that deal in them will be able to hike prices and make more profit.

Here are a couple of stocks that can help you stay ahead of the situation as it is developing right now.

The Mosaic Company (MOS Quick QuoteMOS - Free Report)

Mosaic is a supplier of concentrated phosphate and potash for the global agriculture industry, catering to customers across roughly 40 countries. Its products are processed into crop nutrients, and then shipped thorough rail, barge and ocean-going vessels to customers in major agricultural centers globally.

The Zacks Rank #1 (Strong Buy) stock, which belongs to the Fertilizers industry (top 1% of Zacks-classified industries) has seen its price appreciating 10.3% over the past week. Fertilizers are a commodity that Russia is a leading supplier of, so Mosaic is positioned to benefit from price increases as Russian supply is cut off.

This phenomenon is at least partially responsible for the steady increases in Mosaic’s 2022 estimates from $8.78 to $11.87 over the last 60 days, which has in turn contributed to rising prices. The 2023 estimate is likely to come down from 2022 because of more difficult comps but will still represent notably higher earnings than in 2021.

The Andersons, Inc. (ANDE Quick QuoteANDE - Free Report)

Andersons is a regional grain merchandiser with diversified businesses in agriculture, plant nutrient formulation and distribution, turf product production, railcar marketing and general merchandise retailing. Andersons maintains grain and production facilities throughout the Midwest and six retail locations in northern and central Ohio.

The reason I like this stock at the moment is that it is a supplier of wheat. With supply of Russian wheat cut off, wheat prices are on the rise, which is a positive for profitability at Andersons.

And that’s the main reason that this Zacks Rank #1 stock, which belongs to the Agriculture – Products industry (top 9% of Zacks-classified industries) has seen its 2022 earnings estimate increase 15.3% in the last 60 days. This in turn has led to buoyant share prices that appreciated around 10.0% in the past week. 

3-Month Price Movement

Image Source: Zacks Investment Research