The invasion of Ukraine is a crime against humanity, and a serious escalation in tensions between Russia, Europe, and the United States.
It is causing immense suffering. Let’s hope and pray that diplomacy can end this crisis for all our sakes.
So, what are some possible implications for markets and our economy?
This ruthless invasion from Russia on a geopolitically important and sovereign Ukraine is resulting in Western sanctions on Russia. This is leading to higher energy prices along with other burdens that are putting pressure on the financial markets. Furthermore, these price increases will influence the Federal Reserve’s effort to control already increasing inflation.
What is happening in the markets? Volatility, as we’ve already seen so far, is very likely to continue a bit longer.
What does history teach us about market reactions to geopolitical shocks?
History shows that stocks usually recover quickly from geopolitical crises. History also shows us that there have been numerous events that shake the markets and investor confidence, only to recover given some time. Essentially, markets dislike uncertainty. Once some clarity is found, the markets are likely to recover.
The chat below outlines how geopolitical events impacted markets over three different time periods.
* https://www.reuters.com/markets/asia/live-markets-what-history-says-about-geopolitics-market-2022-02-18/
In the short-term, markets usually react badly. However, a year later, markets have historically recovered.
Will they always? In every case? That is impossible to say.
However, the larger study of 29 geopolitical events since WWII shows a general trend toward short-term losses within the first month and longer-term gains. *
“Geopolitical event” is a very cold and uncaring phrase for things like bombings, wars, invasions, and other horrific attacks, and really fails to encompass the full cost in human misery.
The bottom line is that we never know what happens next in these situations, but history does rhyme.
And we can focus on what’s in our control: Ourselves, our actions and reactions, and our strategies for uncertain times.
We can expect more volatility, more down days, and possibly even a bear market. However, over the long run, history shows there is ample evidence to be optimistic. Peace could be brokered tomorrow, and the landscape could change dramatically overnight. While timing is uncertain, we will continue to monitor the markets as it relates to both the situation in Ukraine as well as rising interest rates and inflation. Our investment strategies were designed with these events in mind. We believe the best way is to own a core of diversified investments, closely monitor them, and trade based upon the long-term trends we see emerge.
-Kari McLeod
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Members of the Wealth Strategies Team:
Cliff Jarvis
Ronald Lecours
Michael Lecours
Kari McLeod
Hal Rives
Wealth Strategies Team
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