How Is the War in Ukraine Affecting Markets?

We’ve seen geopolitical events impact the markets plenty of times before, but is the scale of the event and the ripple effects on the global economy different this time? Chief Investment Officer Jim Lowell and Senior Research Analyst Liz Laprade looked at the impact of the war on markets foreign and domestic in our recent webinar,* Stocks, Bonds and the Fog of War—Our Investment Perspective.   

Please enjoy the excerpt below and click here for the full webinar replay to hear more. 

Jim Lowell:

One of the things that we have really not seen in my investment career is what could easily turn into a global war on economic terms rather than bodily terms. Russia’s a wild card, and its relationship with China, as well as its stranglehold on European sources of energy and food, clearly did trouble the markets—though it troubled the markets a lot less than one would’ve expected. While the first quarter was tough across the board, it was not nearly as tough as it could have been given that the ravages of Russia’s war of choice were growing in scope and scale.

It’s still way too early to know what Russia’s intentions are. Hence, it’s too early to know if this is going to be different from past conflicts. There’s no need for us to try and predict whether or not it will be. Instead, we’ll stay true to the discipline that has served us well for decades: A focus on diversificationA strategy for managing investment risk by investing in a mixture of different investments. Since different asset classes face different risks, even if one type of asset declines in value, others may not. and a focus on riskThe probability that an investment will decline in value in the short term, along with the magnitude of that decline. Stocks are often considered riskier than bonds because they have a higher probability of losing money, and they tend to lose more than bonds when they do decline. awareness and appropriate risk mitigation.

And we’ll zero in, as we always do, on the U.S. consumer—the driver of our economy and, to a certain extent, the driver of the global economy. Right now, the U.S. consumer is fully employed and imminently employable: For every job-seeker, there are one-and-a-half to two jobs available.

This is not the time when we would expect the U.S. consumer to crack. In fact, with mask mandates being lifted and summer travel just about to start, we wouldn’t be surprised if we saw a surge in consumer spending on travel and leisure. So it may be different this time.

We’ll focus on the fundamentals—earnings, interest rates, economic data—to help us frame our response. We certainly won’t be driven by other people’s fears or headlines that tell us what we ought to do. We’ll stay focused on the facts and move in accordance with them.

Liz Laprade:

The outlier event of the Ukraine invasion hit international—Europe, specifically—markets a lot harder than it hit the U.S. Countries like France, Germany and Italy have sold off quite a bit, and most of them are down double-digits this year because of how reliant they are on Russia for oil and natural gas.

Basically, if your international fund doesn’t own a lot of energy, then it’s probably struggling this year, at least compared to U.S. markets. But I would say the abrupt sell-off we’ve seen means there must be plenty of stocksA financial instrument giving the holder a proportion of the ownership and earnings of a company. that sold off despite the fact that they’re actually great companies. There have been many examples of companies reporting strong earnings and great revenue guidance, but they’ve sold off nonetheless with the war news. I think it’s an environment ripe for buying some of those companies. There are good companies at discounts for the right stock-picker and the right fund manager.

Click here for a replay of StocksA financial instrument giving the holder a proportion of the ownership and earnings of a company., 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. and the Fog of War—Our Investment Perspective. Please contact us at (800) 492-6868 to learn more about comprehensive wealth management solutions.