When it comes to finance and commerce the world is very small. Shock waves generated by the Russian invasion of Ukraine are being felt throughout international markets and along Main Street.
While the market’s reaction initially has been more acute than the response to Russia’s illegal annexation of Crimea in 2014 but had less impact on American interests than Iraq’s invasion of Kuwait in 1990.
We at One Financial Services, believe understanding the typical market response to geopolitical risks and focusing on where we’re likely to be at the end of the year rather than at the end of next week or month is the most practical approach.
There are certainly broad questions of the long-term impact on U.S. and European diplomatic and geopolitical goals, but the conflict’s impact on U.S. national interests, though significant, are not in themselves market moving.
Stock market drawdowns as a result of geopolitical shocks average about 5% with recovery usually lasting under two months, but, admittedly, larger conflicts in sensitive regions can be deeper and last longer.
We do expect further market volatility as the situation unfolds and elevated uncertainty may persist for the foreseeable future. Should the conflict be contained within Ukraine’s borders and come to a negotiated conclusion, we do not expect long-lasting contagion to broader markets.
Upward pressure on commodity prices, already impacted by COVID-19-related supply chain disruptions, may see a more sustained impact as economic sanctions play out and will probably be the main source of risk for possible broader economic repercussions.
Early-year momentum in European equities relative to U.S. counterparts may stall as the crisis plays out.
At One Financial Services, we believe that examining and understanding the market response to the current geopolitical situation through the filter of experience and historical perspective is the best approach. Your One Financial Services team is always here to review and assess your options.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. Thank you.