Market Roundup - Tensions between Russia and Ukraine Increase; Stock Market experiences Its Worst Day of 2022:

With tensions between Russia and Ukraine increasing and much uncertainty as to how NATO will react to an invasion, investors are concerned that there will be severe impact on the health of the stock market. And for those worried about potential war, US President Biden’s latest words are far from consoling.

In a White House press meeting on Friday, President Biden said that, although he still hopes for a diplomatic resolution, he is certain that a Russian invasion of Ukraine is inevitable. Russia is also staging large scale nuclear drills, but Biden has stated his belief that Russian President Vladimir Putin is not considering using them to attack the Ukranian capital Kyiv.
Russian backed separatist groups in Ukraine have begun full-scale military mobilisation and ordered women and children to evacuate to Russia, citing an imminent Ukranian attack, allegations of which Kyiv has denied. Moscow has also reported a Ukrainian shell exploding in Russian territory, with an unnamed source claiming the existence of a second.

Amidst the tensions and uncertainty at the Ukrainian border, the stock market experienced a catastrophic week. The Dow Jones, S&P 500 and NASDAQ Composite have each fallen 1.9%, 1.6%, and 1.8% respectively. US crude oil prices, now at $91 a barrel, have been skyrocketing up to 40% since December 1 to have touched their highest since 2014 this past week. And the prices for Brent crude have also soared to reach close to their 7-year highs. This only adds to the fear of markets crashing and of the Fed increasing interest rates to combat the growing inflation. Even what should be good news has not played out as such in  the market. On Thursday, oil prices declined alongside bond yields and the odds of a half point interest rate increase. This should have been a good day. Instead, the Dow fell by 1.8% to deliver its worst one-day decline of the entire year.

However, there is still some good news for investors. Historically, recessions due to crises have yielded high returns on stocks. During the first 12 months after the lowest point in the Covid Crash on March 23, 2020, the stock market rebounded, the Dow, S&P 500 and NASDAQ Composite soaring 76, 76 and 95 percent respectively to make it the best year since World War II. History has shown that unless a recession or other type of economic shock occurs simultaneously, geopolitical shocks such as the Russia-Ukraine crisis tend to have minimal impact on the economy. Of course, oil prices, energy costs, and the inflation associated with them would prompt aggressive increases in interest rates, leading to burdens on businesses and their stocks in the short term. However, this could potentially be short lived and have minimal impact on the overall long-term shape of the economy.

As with past geopolitical conflicts, it is likely that crashes and burdens in the stock market will be short lived, and will only be felt alongside other simultaneous events such as the inflation rate being at its 40-year high and the Fed being in an urgent position to get ahead of it. 

With the resolution of the Ukraine conflict yet to be found, the effects, both short term and long term, upon the stock market and international trade are yet to be seen. For now, it seems as though conflict is inevitable, and businesses and investors will have to do the best they can to adapt to the sudden changes.


Written and collated by Rehaan Kambampati
Written with input from Barron's and Reuters 
Saturday, February 19 2022