Russia & Ukraine
The impact of the ongoing Russia/Ukraine conflict on global markets and personal finance
The Russian invasion of Ukraine – Europe’s second largest country – has understandably generated a flurry of media attention. The economic ripple effects are already being felt here in the U.S., most noticeably at the pump, where rising gas prices have come at a bad time for Americans already dealing with historically high levels of inflation and energy prices. The combination of sanctions, market volatility and uncertainty, and the potential for longer-term disruption in oil markets means that (barring a speedier-than-expected resolution in Ukraine) the economic impact is likely to become more significant over time.
Mark Zandi, chief economist at Moody’s Analytics, has reduced his 2022 US growth forecast from 3.7% to 3.5%, and cited the prospect of higher oil prices in his decision to revise his 2022 consumer price index estimate upwards. Fed Chair Jerome Powell recently stated that he still anticipates a series of interest rate hikes throughout the year, and it’s reasonable to be concerned about what the near-term economic effects will be here in the U.S.
War is not something that can ever be taken lightly. And it’s not comforting to know that a few words from a Russian leader can create a near immediate response in global financial markets. However, when thinking about how the war could affect markets and investments stateside, it is important to keep some things in perspective. As of 2019, Ukraine was just our 67th largest trading partner, with $3.7 billion in total goods traded annually. That’s a relative drop in the bucket of U.S. international trade. While Russia is a more significant trading partner as the United States’ 20th largest supplier of imported goods (as of 2019), the main concern is the impact on Europe and China—both of which are much more connected to Russia economically.
For now, the best approach is one of appropriate caution: pay close attention to new developments in Ukraine, and especially to market segments that are more likely to be impacted by a worsening conflict. Ukraine possesses a plethora of mineral resources. Any sustained disruption in the pipelines connecting Siberian oil and gas fields with Europe could impact the European Union more severely, where the ripple effects of rising oil and gas prices would be more pronounced.
Perhaps the best way to think about the evolving Ukraine situation, however, is to introduce some historical market perspective. Looking back at how wars and other global crises impact the stock market reveals some encouraging data. Starting as far back as the attack on Pearl Harbor in 1941 and studying a range of wars and conflicts, we find that while the total drawdown in market value in the wake of a crisis is alarming, the average number of calendar days to recovery from the end of the drawdown is 47, or a month and a half. Even the average of the slowest ten recoveries from the bottom of a crisis drawdown is 87 days, or about three months. And it’s a helpful reminder that, when it comes to building your portfolio, it pays to be a long-term thinker. Even if the war in Ukraine drags on longer than many experts predict, the markets are remarkably resilient and quick to recover.
