Here is some perspective on the situation in Ukraine and what is happening in the markets.
(Do you 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, the United States, and the world.
Before we look at financial implications, let’s take a moment to think about the Ukrainians who are suffering and dying.
Canada has a large Ukrainian population so many of us know people in Ukraine and are very worried.
Let’s hope and pray that diplomacy can end this crisis for all our sakes quickly.
So, what are some possible implications for markets and our economy?
Given Ukraine’s critical pipelines and Western sanctions on Russia, the crisis is leading to higher energy prices, which is tricking down to higher pump and heating fuel costs. 1
It hit $2.11 when I drove by the gas station this morning.
We have already seen that the Bank of Canada did raise interest rates a small amount this week, but sustained price increases could hamper the Bank of Canada and Federal Reserve’s effort to control inflation, so we’re watching that as well.
What could happen in markets? Extreme volatility, as we’ve already seen so far, is very likely.
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:
Will they always?
In every case? That’s impossible to say. But, the larger study of 29 geopolitical events since WWII shows a general trend toward short-term losses within the first month and longer-term gains. 2
“Geopolitical event” is a very antiseptic phrase for things like
bombings, wars, invasions, and other horrific attacks, and really fails to encompass the full cost in human misery.
Here is a chart for world events and how the market reacted:
The bottom line is that we never know what happens next in these situations but these charts may offer how to react.
Staying the Course in a Bear Market:
What are my Options When the Market is Down?
The Bulls Outweigh the Bears
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.
Looking ahead, we can expect more volatility, more down days, but over the long run things, stock returns should be positive.
Let’s hug the people we love extra tightly today.
Take care, Laura
P.S. Tired of war and bad news? Need a break? Here are two TED talks for you:
3 Manulife Capital markets Strategy, Bloomberg, Dec 31, 2021