Market Insights: Russia-Ukraine Conflict
Every day new headlines emerge, and sometimes, they can create important questions about future impacts on the economy and financial markets. Recently, the dominant headline is Russia’s military invasion of Ukraine.
Geopolitical issues are complicated. Russia supplies 40% of Europe’s heating fuel in the form of natural gas. With Ukraine showing its intent to one day join the North Atlantic Treaty Organization and the European Union, Ukraine’s economic ties and interests seem to be growing more aligned with Europe than with Russia. With a major pipeline network that Russia relies on to access Europe running through Ukraine, there is clearly an economic interest for Russia to control that territory.1 What is to come, whether the conflict widens or is resolved soon, is anything but certain.
It was not long ago when we all faced a different new headline: The COVID-19 pandemic. Early in 2020, the financial markets responded to this uncertainty and the S&P 500 declined 33.9% in 33 days.2 A decline that quick had never been seen before. Yet, by the end of 2020, the S&P 500 had not only recovered from this temporary decline but set a new high. Today, at the time of this writing, we are higher yet.
Global financial markets began moving beyond that headline on March 23, 2020, even though unanswered questions still remain about what the future would look like with the virus.
What is important to reflect upon is that the investment policy of all goal-focused, long-term investors should remain unaffected by short-term events and headlines.
This is not to say that these events are unimportant or that they should be ignored, but rather that investment decisions based on short-term events are not sound long-term strategies; they more closely resemble speculation or an attempt to time the market.
“Investors may try to predict the outcome of a geopolitical issue and then guess the impact it will have on investment markets. If done successfully, it can make them seem to be a money-making master. But, more often than not, people get it terribly wrong. Positioning portfolios on this basis is a very dangerous game that is unlikely to align with investor goals.” —Dan Kemp
Dan Kemp is Chief Investment Officer for Morningstar’s Investment Management group for Europe, Middle East, and Africa regions. The last sentence of his quote is the most meaningful portion. Goals, and the time horizons of those goals, are reliable aims for a portfolio, much more than guessing the outcome of current events.
We continue to believe that long-term investors are best served in the long-term by focusing on their financial goals and strategies that given enough time, money, and patience are able to support them. It may not feel as empowering in the short term, but it does reduce long-term regrets.
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Author: Jeff Landt, CFA, CFP®
Jeff’s primary area of expertise is the investment management process. He assists the firm’s associates with portfolio strategies, portfolio construction, and the best practices of portfolio management. In addition to his leadership roles, he is also a practicing associate with North Star Resource Group, specializing in retirement distribution and wealth management.
This material was written on 2/25/2022 and represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding any funds or stocks in particular, nor should it be construed as a recommendation to purchase or sell a security. Past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. The S&P 500 Index is an unmanaged index of 500 stocks that is generally representative of the performance of larger companies in the U.S. Please note an investor cannot invest directly in an index.
1Luka Alpert, “Opinion: I’m a former Moscow correspondent. Don’t let Vladimir Putin fool you: Russia’s invasion of Ukraine is only about one thing.” https://www.marketwatch.com/story/im-a-former-moscow-correspondent-dont-let-vladimir-putin-fool-you-russias-war-in-ukraine-is-only-about-one-thing-11645571878, Accessed February 24, 2022.
2Yardeni, Stock Market Briefing: S&P 500 Bull & Bear Market Tables, https://www.yardeni.com/pub/sp500corrbeartables.pdf, Accessed February 24, 2022.
Securities offered through Cetera Advisor Networks LLC, member FINRA/SIPC. Advisory Services offered through Cetera Investment Advisers LLC, a registered investment adviser. Cetera is under separate ownership from any other named entity.