Amanda Agati:

In this edition of "Adding Alpha," we share some perspective on how geopolitical events have historically impacted markets, as well as our view on key drivers of the market's path forward.

Consider this table which highlights the total returns of the S&P 500 following major geopolitical disruptions going all the way back to the 1960s.

While events like these certainly can createa more volatile backdrop for investors to navigate in the short run, markets do tend to shrug them off in the longer run.

An increase in volatility is definitely a recurring theme with these types of disruptions, but there's another important theme to consider, too, especially where those negative returns lasted longer than some of the other events highlighted on this slide.

And that's, of course, the disruption to oil markets, such as what occurred during the oil embargo of 1973 and the Iraq invasion of Kuwait in 1990.

Without that structural disruption to oil markets, we think a similar pattern may hold true with Russia and Ukraine this time around.

But, obviously, the situation is still rapidly evolving and very much in the early innings. While we're obviously paying very close attention to what is happening in Eastern Europe, believe it or not, we don't think this is the primary catalyst for the market's path forward.

Spoiler alert -- it's still very much the Fed who's in the driver's seat, but Russia and Ukraine will certainly influence some of the most important drivers of markets this year, including what the Fed may ultimately choose to do on the policy front.

Inflation is already running in excess of 7.5%, and if oil prices rise meaningfully from here, it potentially creates a negative feedback loop, forcing the Fed to act even more aggressively to tame inflation.

Or, on the other hand, the opposite may occur -- the Fed slows its roll to gauge how lasting the conflict might ultimately be.

In the absence of clarity on this front, we think the high-volatility regime dominates.

Our base case entering 2022 assumed we were passing the peak in terms of the rate of acceleration in inflation and that as comps got tougher and supply chains normalized as the year progressed, it would help take some of the inflationary fire out of the backdrop.

It wouldn't eliminate the need for the Fed to take action.

After all, our PNC Economics team sees core PCE hitting 3% by year end.

This is clearly well above the Fed's 2% long-term target, but it's also well below where it currently stands today at about 5.2%.

But this evolving dynamic could allow for a more orderly increase in policy rates versus the 6-plus rate hikes the market is currently expecting based on Fed funds futures.

Now we believe supply chains may take longer to normalize given the ripple effects from sanctions being imposed and rising input cost pressures from any supply disruptions incurred across the energy complex.

But it's not all bad news.

Earnings growth continues to be quite solid for this year, still tracking in excess of 8% growth for the S&P 500.

Q4 earnings season finished in a strong place, well ahead of expectations, and revisions have turned up again after stagnating toward the end of 2021.

At some point, we may start to see headwinds build from the shifting macro backdrop, but, importantly, not just yet.

The fundamental backdrop is still very much intact.