Market Impact Likely to be Contained
Over the past couple weeks, we’ve fielded calls regarding thoughts on the Russia/Ukraine conflict. In short, we don’t believe that any type of ‘invasion’ will wreak long-term havoc to your portfolios – though it is quite possible that the short-term road could be a bit bumpy. If you’ve been a client of ours for a while, you know that we don’t try to second guess the market. We believe your portfolio is built to sustain periodic volatility. Below you’ll find some thoughts from LPL Financial’s research department. Perhaps their perspective will give some additional clarity and confidence.
Ukraine / Russia conflict escalates, but market impact likely to be contained
- Russian President Putin sent troops into eastern Ukraine Monday after declaring the independence of two separatist territories, further escalating geopolitical tensions.
- Stock market drawdowns from geopolitical shocks average about 5% with recovery taking under two months, but larger conflicts in sensitive regions can be deeper and last longer.
- Broader questions of larger U.S. and European diplomatic and geopolitical goals and the conflict’s impact on U.S. national interests are significant, but not in themselves market moving.
- Russian goals in Ukraine may be similar to its illegal annexation of Ukrainian Crimea in 2014: continued annexation of territory and added incremental pressure on Ukraine but not outright invasion, although that’s still a possible scenario.
- The market impact is likely to be felt most keenly in commodity markets and there may be some flight to quality in the near term, but we expect global markets to continue to function normally.
- NATO has already expanded to three countries that were part of the former Soviet Union and nine countries that were geographically part of the former Eastern Bloc, limiting the threat to the broader region.
- For a history of the S&P 500’s reaction to geopolitical shocks, see our earlier blog on the topic, What Could Happen If Russia Invades Ukraine?
As always, thank you for this opportunity to be of service. We’re here if you need us.
Marc and Marion
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.
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