(Need a break from it? Scroll down to the P.S.)
The invasion of Ukraine is a serious and scary escalation in tensions between Russia, Europe, and the United States. It has been a very long time since the actual talk of nuclear attacks has been considered or discussed in these terms. Before we dive into what it could mean, let’s take a moment to think about the many folks who are suffering and dying as well as the ordinary Russians who will suffer from sanctions, instability, and economic damage. There are many stories of Russian soldiers who are being asked to fight knowing their relatives are amongst the Ukrainian citizens, or Russian soldiers who were told this was just another training exercise and are running out of gas, food, clean water, and warm clothes. Not that there is ever a good side to war, but it is reassuring the Ukrainian citizens are wanting to stand up for their freedoms. I pray they are successful and the loss of life of blood shed can be minimal. I hope diplomacy can end this crisis for all our sakes.
Let’s talk about some possible implications for markets and our economy.
Given Ukraine’s critical pipelines and Western sanctions on Russia, the crisis may lead to higher energy prices, which will trickle down to higher pump and heating fuel costs.1 Not to mention even prior to this invasion energy prices and inflation was already being felt. Sustained price increases could hamper the Federal Reserve’s effort to control inflation, so we’re keeping an eye on that as well.
What could happen in markets?
Extreme volatility, as we’ve already experienced, is very likely. Another correction (or even a bear market) is definitely possible. I believe we will know much more about this conflict in the next few weeks, as we either see peace talks have some success or simply further escalation and talks break down.
What does history teach us about market reactions to geopolitical shocks?
History shows that stocks usually recover quickly from geopolitical crises. I’ll add a disclaimer that the future doesn’t perfectly match the past — but it often rhymes. Let’s take a look at some examples from other invasions and wars.2
Here’s the key takeaway: short-term, markets usually react badly. However, a year later, markets have historically recovered. Will they always? In every case? That’s impossible to say.
But, the study of 29 geopolitical events since WWII shows a general trend toward short-term losses in the first weeks and longer-term gains over months.2A note: “geopolitical event” is a very antiseptic phrase for horrible things like bombings, wars, invasions, attacks, and really fails to encompass the full cost in human misery.
Let’s never forget the ugly truth behind the numbers and what the cost of freedom is. I know it’s not yet Memorial or Veterans Day, but it’s time like these we remember you, who sacrificed your life for our freedoms. My family is humbled by your service to our great Nation, we will never forget you nor the freedoms provided.
We can’t know or control what happens next. We can hope, pray, donate, and speak out.
And we can focus on what’s in our control: Ourselves, our actions and reactions, and our strategies for uncertain times.
Let’s hug the people we love extra tightly today, acknowledge a veteran and thank them for their service, and be very grateful for our blessings.
Jeremy Ftacek, AIF®
Ftacek Financial Services, LLC.
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P.S. Tired of war and bad news? Need a break? I’ve got two TED talks for you: 1) A dive into research that shows how our brains might be wired for optimism; 2) How to forge meaning from challenging moments.
P.P.S. Looking for ways to donate to Ukrainians? Here’s a roundup of some organizations doing good work.
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