Markets are seesawing between panic and euphoria, like a bipolar patient off his meds. Let’s try to make sense of the financial mood swings.

Markets staged a ferocious rebound on Wednesday, after the war-induced rout of recent days. The main U.S. stock market indices rose as follows: the Dow Jones Industrial Average +2.00%; the S&P 500 +2.57%; the NASDAQ +3.59%; and the Russell 2000 +2.71%.

The per-barrel price of crude oil fell by about 14%. Safe haven assets including gold and the U.S. dollar also tumbled. It was a risk-on day, with mega-cap tech stocks getting their mojo back, and financials among the leading gainers. Stocks rose on hopes for a diplomatic breakthrough between Russia and Ukraine.

Talks faltered, turning investor sentiment gloomy again. In pre-market futures trading Thursday, stocks were falling and oil prices were rising, as volatility continued.

We’re seeing the familiar pattern of a plunge, followed by bargain hunting, followed by another plunge. Worsening inflation is exacerbating the roller-coaster action.

All eyes Thursday were on the latest Consumer Price Index (CPI) data, released by the Bureau of Labor Statistics (BLS). Inflation came in hot.

The BLS reported that in February, the CPI for All Urban Consumers rose 0.8% month-over-month, seasonally adjusted, and rose 7.9% over the last 12 months, not seasonally adjusted. The yearly rise represented a 40-year high. The index for all items less food and energy (the core CPI) increased 0.5% in February from the previous month, and was up 6.4% over the year (see chart).

Economists had expected headline inflation to increase 7.8% for the year and 0.7% for the month.

Even if supply chain imbalances caused by the pandemic and the war get ironed out, it’s starting to look as if inflation is becoming structural. Commodities prices have embarked on a multi-year upward trajectory, as demand outstrips supply. More about commodities and how to profit from them, in a minute.

Many companies are raising prices not because they’re compelled to by costlier inputs, but simply because they can. The jacking up of prices feeds inflation expectations, which becomes a self-fulfilling prophesy.

In addition to higher energy prices, food prices are shooting through the roof as the production of major foodstuffs, such as wheat, get disrupted by the Russia-Ukraine war. The American electorate is taking notice. (My wife, who does all the household shopping, has been bitterly complaining to me about the soaring cost of bread and cereal.)

The new normal…

Even if Federal Reserve tightening succeeds in bringing down inflation, we’re unlikely to see a return to the pre-pandemic era of 2% inflation or below.

The Fed is trying to execute a soft landing, i.e. curb inflation without torpedoing the economy. But that’s always a tricky act to pull off, made even more difficult by the “black swan” of the war in Ukraine.

Russian President Vladimir Putin is an ex-KGB colonel who was stationed in the former East Germany. He’s a fierce nationalist who laments the demise of the Soviet Union. His dream is to restore Russia to its former glory, when during the Cold War the country was a feared superpower with vassal states in Eastern Europe.

Putin badly miscalculated by invading Ukraine. The only distinction he has achieved so far is to kill a lot of innocent people and make Russia the most sanctioned nation in the world:

Through his own hubris, Putin has cornered himself and faces two choices: suffer humiliation now and pull out, or suffer humiliation later, when his plan to subjugate Ukraine ultimately fails. Putin will likely double-down on the mayhem, causing more damage to the global economy and financial markets. No one expected or planned for this crisis; that’s why they’re called black swans.

Read This Story: How to Profit From Putin’s Epic Blunder

Regardless, Putin’s job is on the line. Russian history shows that the Kremlin’s power elite is unkind to those who lose military contests, or lose face. For example, Soviet Premier Nikita Khrushchev was ousted by the Politburo in 1964, two years after the Cuban Missile Crisis, largely because of his embarrassing retreat at the hands of President Kennedy.

It’s impossible to say how the Russia-Ukraine crisis will end. But as I’ve explained in previous articles, the global stock market always bounces back from various geopolitical stress tests. Autocrats, wars, pandemics…they come and go. Don’t abandon your investment plan. If you’re properly diversified, hunker down and be patient.

Increasing your exposure to hard assets and raw materials is a shrewd way to simultaneously tap growth, and insulate against both inflation and geopolitical turmoil. One of the world’s most vital commodities is copper.

Copper is in great demand but short supply, which spells huge future gains for producers of the “red metal.” For details about copper and how to profit from its rise, click here.

John Persinos is the editorial director of Investing Daily

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