The ongoing conflict between Russia and Ukraine could have a devastating impact on global stock markets. The main disruption will be in the form of crude oil supplies, with the result being prices hitting above the $100 a barrel mark, the highest price in seven years. This could lead to a massive drop in demand, which for some economies may result in a recession. The world is looking to see whether Russia will invade Ukraine, and what sanctions the United States of America and NATO may impose when necessary.
Impact of Invasion on Stock Markets
The potential surge in crude oil prices caused by a disruption in supply means volatile financial markets and higher inflation. Furthermore, the stock market sell-off that recently occurred following Jake Sullivan’s announcement that an invasion is imminent, indicates how markets will continue to react if an invasion does occur. History reveals that the biggest shifts in financial markets occur when geopolitical conflicts take place.
This outstanding article with 1 million reviews and 200 hours spent on extensive research gives an excellent account of how markets have historically reacted to these types of conflicts and offers insight into what can be done today.
The S&P has been down more than 7% since the beginning of 2022. Then recently, the Dow Jones Industrial Average dropped more than 500 points. In Europe, we saw a drop in stock markets as the FTSE 100 fell by 1.7%. The Federal Reserve is working towards controlling surges in consumer prices and changes overseas could significantly and negatively affect their efforts.
According to Sam Stovall, Chief Investment Strategist at CFRA, equity markets are most at risk. There is a silver lining, which is that historically, geo-political events have had a short-term impact on the markets. Keith Lerner, Chief Investment Officer of CFRA states, “As long as they don’t drive you into recession, then the markets tend to rebound.” Mark Hulbert of MarketWatch supports this sentiment stating, “Indeed, the takeaway from past geopolitical crises may be that it’s best not to sell into a panic.”
What does this mean for investors?
A look at history reveals Lerner’s words hold some truth, which is an essential insight for investors. Truist Advisory Services has carried out a comprehensive review of 12 similar historical events, including the Iraq War of 2003, and the Cuban missile crisis of 1962. After nine of these events, the S&P 500 achieved an average gain of 8.6% which was higher than the year before the events occurred.
For investors, this means that there should be no rush to action due to this possible situation between Russia and Ukraine. Evidence from regulated trading platforms reveals investor anxiety, as there has been a spike in the number of investors selling-off stocks to avoid big losses in the near future. Currently, Sergei Lavrov is urging Vladimir Putin, President of Russia, to explore diplomatic efforts which could allow for doing a deal. As the world awaits the decision of Putin, the ongoing uncertainty does have an impact on the stock market, but there is hope that these talks will take place.
Currently, the 100,000 strong forces from Russia hold their position at the Ukrainian border but have not further escalated their action which would increase tensions. The threat is present, and it is this concern that will continue to affect financial markets until a decision is made. Aside from the impact on the financial markets, countries around the world are advising their citizens to leave Ukraine for safety purposes.
Although as an investor, you may be seeking to recoup your investment as quickly as possible, this may be the ideal time for patience to receive a great result in the long haul.
