Market Update: Stocks, Global Uncertainty and War


John Micklitsch, CFA CAIA, President & Chief Investment Officer
David Sowerby, CFA, Managing Director, Portfolio Manager

The news that Russia has escalated its military aggression against Ukraine has brought additional volatility to global stocks. This geopolitical event creates near term uncertainty, which is something the market does not like. As we uncover more of the likely impact of the Russian assault, it is essential to identify what investors can expect and how we are managing portfolios in the current environment.

Key Thoughts:

There are past examples of how U.S. stocks have responded to global crisis and events of war. The key takeaway is that, despite near term uncertainty, stocks tend to recover and are, on average, higher six months following the outbreak of conflict, according to Ned Davis Research.

The country most at risk in this conflict, besides Ukraine, is Russia, which experienced economic sanctions and suffered a recession when they invaded Crimea in 2014. Russia is less than 2% of global GDP, and therefore is less likely to have a major economic impact on global growth.

Oil prices were already heading higher before the Ukraine crisis and are likely to go higher in the near term. This will add to the current inflationary backdrop, however, the likelihood of it producing a U.S. recession remains a low probability event in our opinion. The uncertainty may even slow the pace of expected central bank rate increases around the globe, which has been another contributing factor to recent volatility.

It is critical to know that the companies you own in your portfolios, either through individual securities or funds, are selected for their ability to create shareholder value in both good and difficult environments. Quality endures.

The S&P 500 is approximately 13% off its 52-week high and technically in correction mode. It is worth noting that that the average intra-year decline in stocks is about 13%. The largest decline in the S&P 500 in 2021 was just 5%. This is the abnormal part.

To be a seller on today’s news, there is likely a higher probability that the current drop is closer to the bottom than just beginning. It is also important to remind investors that today’s stock prices are not your longer-term prices when you might actually need the capital.

In summary, the market does not like uncertainty and Russia’s invasion of Ukraine has created additional geopolitical and economic uncertainty. The compensation investors receive for enduring periodic bouts of uncertainty is higher expected future returns. Asset allocation, establishing liquidity reserves, security diversification and a focus on holding quality assets can all help investors maintain investment discipline. 

Author’s Note: Please note that here we discuss only the potential economic and market impact of these events, acknowledging that the physical and emotional toll is likely far greater and that the situation is still developing. Our thoughts are with those whose lives are affected by these events.

View All >