By now, you've undoubtedly heard the news about what's happening in Ukraine. I won't repeat it here because by the time I hit "publish," new developments will have occurred, and tomorrow more news will come up, and the day after that.
Our message is not a message about the news. This is a reminder about the resiliency of the markets and the importance of calm, even when there's a lot of noise around us. It is a reminder that we're here for you if you want to have a quick (or long) call to talk about the markets or whatever's in your mind.
We've seen crises before. You've seen crises before. When designing your portfolio, we considered the risk of decline, regardless of where it may come from, so we believe that no change is necessary. However, we're still monitoring your portfolio, as we always do. We'll rebalance when we think it's time to do so.
Read on if you want more details on why we're not in fear. From a market perspective, in most cases that involve geopolitical events, the market tends to look past these events. Market declines are minimal, with an average drop of less than 5%, with quick recoveries, with the average being about 43 days.
But, the more severe the event, the greater the impact on the market. For example, the reaction after the 9/11 terrorist attacks. The S&P 500 was down a total of 11.6%, which took 11 days, and the market fully recovered to prior highs in a total of 31 days. One of the more severe events was the bombing of Pearl Harbor, where the S&P500 fell a total of 19.8% over 143 days and took 307 days to recover fully.
The invasion may reduce inflation pressures that have stemmed from high goods demand.
This series of events may give the Federal Reserve enough reason to manage this rate hike cycle far more cautiously than they may have otherwise. While oil prices should stay high due to low supply levels in Europe and the heavy dependence on Russian oil in the European Union, high oil prices due to armed conflict are not something the Fed can manage down. In that situation, absent a broad European conflict, it may well represent a tailwind for U.S. stocks on the back of still solid earnings growth.