As Mark Twain put it: “God created war so that Americans would learn geography.”

Before Russian President Vladimir Putin invaded Ukraine six weeks ago, I doubt many people could even find Ukraine on a map. But we’re learning more about this Eastern European country every day. In fact, news from Ukraine is moving markets and directly affecting our portfolios.

As the second quarter gets underway, the Russia-Ukraine war remains a wild card for investors. Causing jitters this week are reports of war atrocities committed by Russia in Ukraine. The U.S. and European Union are currently weighing additional sanctions against Russia, a prospect that threatens the global economy and markets. Below, I’ll show you how to trade under these conditions.

Ukrainian President Volodymyr Zelensky has been accusing Moscow of “war crimes” as gruesome images emerge of mass graves and civilian corpses. Zelensky has asked the International Criminal Court (ICC) to investigate.

European Union negotiators are scheduled to arrive in Washington, DC on Wednesday to hammer out a fresh round of punitive measures against Russia. Germany’s defense minister has asserted that the EU should discuss banning imports of Russian gas, a drastic step that has been avoided so far.

That said, stocks started the week higher. Buy-on-the-dip was the mantra in the beaten-down technology sector, which in turn created a tailwind for the broader market.

Driving the climb higher Monday was the tech-heavy NASDAQ, which jumped 1.90% amid a surge of 27% in shares of Twitter (NYSE: TWTR), after Tesla (NSDQ: TSLA) CEO Elon Musk announced that he had purchased a 9.2% stake in the social media company. The other three indices rose as follows: the Dow Jones Industrial Average +0.30%; the S&P 500 +0.81%; and the small-cap Russell 2000 +0.21%.

In early trading Tuesday, U.S. stock futures were little changed. However, war and recession fears continue to unnerve investors. As of this writing, the 2-year and 10-year Treasury yield is inverted, European stocks are falling, and prices for crude oil and natural gas are rising.

The economic bite of sanctions…

Sanctions already in place probably will result in slightly lower corporate profits in the U.S. and Europe, partly due to higher energy costs. So far, the U.S. has imposed the greatest number of sanctions against Russia (see the following chart).

In addition to the Russia-Ukraine war, the U.S. and global economy face other risks in 2022, such as hotter inflation and monetary tightening by the Federal Reserve and other central banks.

However, on the plus side, corporate balance sheets and the consumer remain in solid shape. What’s more, the pandemic is petering out in most regions of the world, although spikes of infections in China and that country’s concomitant crackdown are troublesome.

Buy on the dips…

Within this context, I expect modest gains for the stock market this year but punctuated by continued volatility. The conflict in Eastern Europe is the biggest uncertainty and adverse developments are likely to trigger selloffs, although I’d view these downturns as buying opportunities. Your portfolio needs to be diversified, and you can use pullbacks as chances to further that goal.

Inflation hedges (e.g., gold and other hard assets) make sense now, but keep in mind, historically stock gains have outpaced inflation rates. Corporate earnings growth also tends to accelerate as inflation climbs, and companies with pricing power typically reap the greater benefits.

Watch This Video: The Perils and Profits of Energy Volatility

Resource names should be part of your diversification strategy, as well as energy exposure. The energy midstream sector looks particularly appealing now. Select master limited partnerships (MLPs) are poised for a comeback as energy prices appear set on a lasting upward trajectory and logistical impediments linger.

As economic reopening picks up steam, value and cyclical plays should outperform. A shrewd approach is to pinpoint undervalued cyclical companies that also enjoy distinct competitive advantages and pricing flexibility. By dominating their respective niches over the long haul, these companies offer protection against downturns or unexpected external shocks.

You should also consider the advice of our premium trading service, Rapier’s Income Accelerator, helmed by Robert Rapier.

Even in the face of rising interest rates, hotter inflation, and overseas war, Robert Rapier’s trades are cash machines. Anyone who adds Robert’s little-known strategy to their portfolio can enjoy more cash, more often, with less risk. Click here now for details.

John Persinos is the editorial director of Investing Daily.

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