Chart of the Week: The Reality of Wartime Returns

Jeffrey DeMaso

Portfolio Manager

A month ago, Russia invaded Ukraine; surely stocksA financial instrument giving the holder a proportion of the ownership and earnings of a company. are down and bondsA financial instrument representing an IOU from the borrower to the lender. Bond issuers promise to pay bond holders a given amount of interest for a pre-determined amount of time until the loan is repaid in full (otherwise known as the maturity date). Bonds can have a fixed or floating interest rate. Fixed-rate bonds pay out a pre-determined amount of interest each year, while floating-rate bonds can pay higher or lower interest each year depending on prevailing market interest rates. are up since then, right? Not quite.

This week’s chart plots the returns of a few major markets as measured by Vanguard’s index funds.

Going region by region for stocks: European equitiesThe amount of money that would be returned to shareholders if a company’s assets were sold off and all its debt repaid. fell the hardest at first—no surprise there—but after tumbling 11.9% in the first two weeks, they had nearly recouped all of their losses as of Wednesday night. The U.S. has been the best-performing region, with Vanguard’s Total StockA financial instrument giving the holder a proportion of the ownership and earnings of a company. Market Index fund up 5.6% since the Russian invasion. Emerging markets are down the most. After falling into correction territory (down 12.3%), Vanguard’s Emerging Markets Stock Index fund has rebounded and is only 4.5% below its prewar level—a loss is a loss, but that’s not a bear marketA period in which stock prices decline significantly from recent highs and remain below previous high marks for weeks or months. Generally, a decline of at least 20% in stock prices is considered the threshold marking the start of a bear market. or a crash.

As for bonds, let’s look at U.S. Treasurys—historically the safe-haven asset of choice that you might expect investors to flock to after a war breaks out. Well, Vanguard’s Intermediate-Term Treasury Index fund is off 2.1% since the invasion began.

Two lessons from this chart: First, the market impact of most geopolitical events isn’t as severe or as long-lasting as you might expect. Second, timing the market based on macro events is difficult—if not impossible.