It’s been an interesting shortened week. We had three straight down days, followed by a pretty good bounce today (as of 8 a.m.) after the latest U.S. inflation numbers came in largely as expected.

If I go back to what I wrote last week, I mentioned that I was more concerned about the Russia-Ukraine war targeting refineries and energy infrastructure than I was about the price of oil itself.

The reason is simple. The world has lots of oil. It doesn’t all have to come from the Middle East. What becomes more problematic is when refineries, pipelines, ports and other infrastructure get damaged. You can have lots of crude oil available, but if you can’t refine it or move it where it needs to go, you can still get some pretty big moves in gasoline, diesel and other energy prices.

That theme carried over into this week, except this time the problem came back to the Middle East.

The Houthis, who are closely aligned with Iran, have become active again and have been targeting Saudi energy and port infrastructure. One of the targets has been the Jazan refinery, and there are concerns about further attacks on Saudi facilities and shipping routes.

That was enough to get markets nervous.

Oil moved higher, bond yields moved around and we started hearing the same concern again: higher energy prices are going to push inflation back up, which means interest rates could stay higher for longer.

I wasn’t as convinced.

My view going into this morning’s inflation report was that inflation would probably come in reasonably close to expectations and that we weren’t suddenly heading back into a major inflation problem because of what had happened with oil over the past few weeks.

And that’s basically what we got.

U.S. headline inflation came in at 3.4% year-over-year and 0.4% month-over-month, right around expectations. That was important because this is the last major inflation report before next week’s Federal Reserve meeting.

The number didn’t give markets the inflation surprise they had been worrying about, as a result, markets are rallying today.

One thing worth pointing out is that some of the current pressure in energy isn’t necessarily because the world is running out of crude oil. The research we follow argues that the bigger issue right now is refining capacity.

That might sound like a small distinction, but it matters. A shortage of oil itself would be a much bigger and potentially longer-term problem. Refining disruptions can still create price spikes, but they are a different type of issue and potentially more temporary.

From a portfolio-management standpoint, we didn’t make any major changes this week.

We did, however, rebalance after the three down days.

That’s something we’ve done consistently. When markets move around, certain investments become overweight and others become underweight. We use those moves to rejig the portfolios, take a little from areas that have held up better and add to areas that have pulled back.

It isn’t particularly exciting, but it has worked well for us in helping dampen volatility.

I also did something yesterday that I’d told several clients I would do.

We have a number of clients sitting on cash, and rather than invest it all at once, we’ve been easing it into the market through dollar-cost averaging.

I told them from the start that if we got a few down days, I’d use that weakness to put some of the cash to work.

Yesterday, after three straight red days, we did exactly that.

Was I sure it was the bottom? No. That’s not the point.

If you believe, as I do, that we’re still in a longer-term bull market, these pullbacks are usually better times to buy than waiting until markets have already recovered.

So we bought yesterday. Today’s bounce makes the timing look good, but one day doesn’t matter much. What matters is having a plan and using volatility to your advantage.

The Bull Case Is Still Intact

We have no shortage of things for markets to worry about: Russia and Ukraine, Iran, the Houthis, oil, tariffs, inflation and interest rates.

Each time one of these macro issues has created a sell-off, markets have so far recovered. That doesn’t mean they always will, and it certainly doesn’t mean we ignore the risks. But it does mean we need to be careful about turning every new headline into a reason to make a major portfolio change.

I was at a conference yesterday with some of the biggest portfolio managers in Canada, and in some cases the world, and I always find these events extremely useful. Everyone has their own view, their own area of expertise, and importantly, they don’t all agree.

I like that. The last thing I want to do is fall into confirmation bias and simply look for people who tell me what I already think. Markets change, conditions change, and good investing means constantly challenging your own assumptions.

What was interesting yesterday was that, whether the managers were more bullish or somewhat more cautious, there was a fairly consistent message underneath it all: the fundamentals remain strong.

Corporate revenues are strong, capital continues to flow, and when these managers went through their asset allocations, almost all of them said they remain overweight equities relative to bonds. Some are taking a slightly more defensive approach within their stock portfolios, but the general view was still that this bull market likely has more room to run.

That is very much in line with how we’ve been positioned. We’ve remained overweight equities because we believe the fundamentals still support it, while also holding defensive investments that can help offset some of the downside when volatility picks up.

What also gives me some comfort is how the market is actually behaving.

Even during this three-day slide, we didn’t see anything that looked like panic. These were relatively small declines. It felt more like the market was digesting new information and repricing risk rather than investors rushing for the exits.

That is what you want to see.

A healthy market should be able to absorb bad news, adjust prices, and move on. Risks get priced in, and when those risks turn out to be less severe than feared, they get priced back out. That is basically what we are seeing today.

The bond market has also taken these developments largely in stride. Overall, the market continues to look resilient rather than fragile.

So while there are certainly risks out there, I actually think this remains a pretty good market to be investing in. It isn’t overly euphoric, but it also isn’t overly panicky. It is taking in new information and responding to it in a fairly orderly way.

Mark Ting, CFP®, CIM® is a registered Portfolio Manager at Foundation Wealth Partners. Foundation Wealth Partners LP (“FWP”) is registered as a Portfolio Manager and Exempt Market Dealer in all Canadian provinces and the Yukon territory.