For most consumers, the interconnectedness of the world means enjoying the luxury of sitting at home and completing online transactions with a merchant halfway across the globe. But what many don’t realize is that the more connected the world becomes, the more risks domestic players in the global market are exposed to. This maxim holds true for the stock market as well. Markets respond to social, political, economic, and even religious tension. It’s no wonder then why the Russia/Ukraine conflict has led to increased volatility in the equities market. But the impact is not limited to equities, chances are that global financial markets will also take a significant hit. In short, no industry or sector will be insulated from the effect of this geopolitical conflict.
The conflict which surrounds Russia’s threat to launch a rocket into Ukraine has the propensity to tumble stocks in the western hemisphere but especially those in European markets. Although the effect on US stocks aren’t expected to last very long if Russia decides to follow through on its threat, investors have already started to react to the news sending Treasury prices higher. The reaction may be considered a mild one since things could get worse if the attack actually happens. As Russian forces amass at Ukraine borders, US citizens are being advised to leave Ukraine as soon as possible.
For now, it is still unclear the extent of the impact as a result of the conflict as well as what it could mean for allies in US and European markets. However, market experts are advising investors against any significant portfolio changes at this time. Market analyst at Price Futures Group, Phil Flynn told MarketWatch “I think if a war breaks out between Russia and Ukraine, $100 a barrel will be almost assured.” Furthermore, overall energy prices are likely to surge since Russia is a major supplier of oil on the global market and a primary supplier of natural gas to Western Europe. In the meantime, The Cboe Volatility Index which is Wall Street’s fear gauge was up for a second straight session on Friday. The index hit its highest since the end of January. Meanwhile, the Nasdaq was down by approximately 2.8% while the S&P 500 index was off nearly 1.9%. This continued the weak performance recorded on Thursday.
At the same time, it is important to note that the Russia/Ukraine conflict comes at a time when markets are already weary of inflation and surging crude prices. The compounded issues threaten to spook investors even further. However, US markets have historically been resilient throughout geopolitical tensions. For example, stocks recorded one of their best six-month performance ever following the JFK assassination. Following a telephone conversation between Russian President Vladimir Putin and U.S. President Joe Biden on Saturday the White House said Biden “was clear that, if Russia undertakes a further invasion of Ukraine, the United States together with our allies and partners will respond decisively and impose swift and severe costs on Russia.”
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