Wesley's Rant: Geopolitical Events: Is Russia – Ukraine any different?
Monday, March 07, 2022
Global geopolitical events often follow a standard blueprint. The event consumes the news headlines; investors show some panic, resulting in a period of high market volatility. Our news media has been talking about Russia and Ukraine since last October. Since the Russian invasion of Ukraine started, it has dominated the news 24/7. President Biden’s “State of the Union Address” the other night was more about the “State of Ukraine” than the state of our country.
Historically, so long as the fundamentals of economic growth are not broadly impacted, financial markets go back to what they were focusing on before the geopolitical event. For example, before the war, the focus of the financial markets was inflation and how the Federal Reserve would react.
The Exhibit below shows several geopolitical events over the years and how financial markets responded – both in terms of length and size of drawdown and the period it took to regain previous levels. On average, the markets lose around 5% and make up those losses in just a month.
The immediate impact of the war has been the spike in energy prices and the prospects for growth in Europe. However, if energy prices remain high and climb higher, it will not help the current trend of higher inflation.
Transportation costs, heating costs, and other energy industries will all go higher, impacting the prices of all goods across the board. In addition, our Federal Reserve will be meeting on March 16th, and the Chairman of the FED has indicated that the FED will announce the first increase in the short-term Fed Funds rate. Likely, the double whammy of higher energy costs and the start of our Federal Reserve taking the first steps to slow down inflation will add to the current uncertainty in the markets.
If you have been an investor for many years, none of the current market reactions surprise you.
If you just started investing, you may have already decided to stop investing. The problem with letting the emotions of the day direct your investment decisions is that it leads to the possibility of making two mistakes.
Selling investments in fear and then buying back assets when markets recover is not a recipe for investment success. Sometimes the best financial decision you can make is to stick to your long-term investment plan. If you work with an investment professional and have had a conversation with the person in the last couple of weeks, I imagine you received similar advice. However, if you don’t work with an investment professional and are navigating the investment world on your own, do your best not to allow emotions to drive your investment decisions.
Managing Partner, Financial Advisor, CFP®, J.D.
Footnotes and Disclosures
Graph - February 14, 2022, GEOPOLITICS IS RUSSIA-UKRAINE ANY DIFFERENT? Northern Trust Asset Management © 2022 Northern Trust Corporation. Head Office: 50 South La Salle Street, Chicago, Illinois 60603 U.S.A.
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The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC, or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor about your individual situation. Comments concerning the past performance are not intended to be forward-looking and should not be viewed as an indication of future results.