To begin, this is not investment advice. Merely my perspective on Russia’s recent invasion of Ukraine, how it is already affecting global markets and what it means for you.
A lot has happened within the past 24 hours: late yesterday, Russia began a full-scale invasion of Ukraine, with airstrikes reported in Kyiv and many other cities. Western leaders have condemned the attack and vowed to respond decisively. We’ll see exactly what that means over time…
With all of the conflict’s uncertainty, here is my best break down of what’s happening and how it might affect you as an investor.
Why is the conflict impacting stock markets?
Stocks have been falling in 2022 as investors deal with the impact of decades high inflation and upcoming interest rate hikes by the Fed. This conflict now is weighing on what’s already hurting markets.
Uncertainty: While some uncertainty is always a given, high geopolitical disorder can be bad for stock markets. Some investors have been retreating to “safe-haven assets” like gold, US govt. bonds, “defensive stocks,” which can be less affected by volatility (i.e. healthcare, goods and services and utilities).
Inflation: This double-edged sword and global sanctions on Russia will cause prices of oil, food, rent, and other commodities to increase even more. Russia already supplies more than 1/3 of the EU’s natural gas and is the world’s largest wheat exporter.
Supply chains/operations: Clearly most Western companies do not have operations in Russia or Ukraine. However, oil conglomerates and some automakers do, and with further sanctions, this could disrupt supply chain issues even worse than the damage of the past few years already has.
So how are markets reacting?
As this global crisis intensifies, stocks have declined while investors have moved out of more volatile assets like blue-chip stocks and technology companies and into “safer” investments.
Stocks plummeted globally Thursday morning as some markets have been affected more than others. The US markets (Dow, NASDAQ and S&P 500) were able to claw their way back with positive closes this afternoon.
Germany’s market is down more than the United States seeing as Germany has more economic ties with Russia (Russia supplies 1/3 of Germany’s oil). Russian stocks were down more than 30% today with the ruble plunging to a record low.
US Treasury bonds are spiking as demand for US govt. debt rises, interest rates on those “safe haven” bonds are dropping. The US dollar is increasing as Russia’s currency is losing significant value.
Commodities like oil, gold, and wheat are soaring. Crude oil is at a 7 year high as the world worries about reduced supply from Russia, while gold prices are rising as investors seek more stability. We already knew gas prices were high because of inflation, don’t be surprised to see > $4.00/gallon. Gold is another story for another blog post…
How could this play out long term?
No one, myself included, has a crystal ball to predict these future outcomes, but historically the US market, as represented by the S&P 500 index, has bounced back from these types of situations over time. Once you zoom out, and since 1941, the total fall in the stock market after major geopolitical events was 5% on average — before it eventually recovered after a few months. Of course, past events are not a guarantee of what will happen in the future.
So what is the takeaway for investors like you and me? Please keep in mind the following:
1. Diversification: Allocating a portfolio across different industries and investment types (i.e. stocks, bonds, index funds, Bitcoin, cash, real estate, commodities, futures) can help hedge risk when specific assets decline. However, it’s important to remember that diversification isn’t guaranteed to prevent loss, especially when markets decline as a whole.
2. Time: Long-term investors have more time to potentially recover from market corrections and global conflicts. While certain individual stocks might not recover, the US stock market as a whole has historically been resilient over time. Lastly, time in the market is greater than trying to time the market.
3. Keep an open-mind as you continue to learn and grow. I would be lying if I told you I completely understand or comprehend fully what’s going on in the world. I don’t and neither do you. While I am doing my best to provide support as a resource, the markets are just one aspect of a crisis that has significant implications for human life and global stability.
Stay safe out there everyone. No one loves war. Peace, collaboration, kindness, joy and freedom will prevail over the long run.
My Very Best,