Tim H. from Cleveland, OH asks: Hello Mitch, I’ve been getting a little concerned about the Russia/Ukraine situation spilling over into a full-fledged war. Seems like that wouldn’t be a small conflict. Hypothetically speaking, wouldn’t a new war be a negative for the markets?
Mitch’s Response:
Thank you for writing. There is no question that conflict between Russia and Ukraine is the geopolitical issue of the day, and you are correct to wonder how geopolitical conflicts may affect sentiment and the markets.
I’ll set the stage first for readers, who are no doubt aware of this simmering issue. Russia has amassed some 100,000 troops on the Ukrainian border, which U.S. intelligence believes could trigger a swift invasion anytime in early 2022. The U.S. and allies have prepared a list of sanctions on Russia should they invade, but the possibility of U.S. troops or NATO forces being involved in actual combat seems low (at least today). The sanctions being floated would undoubtedly hurt Russia the most by blocking exports of goods to Russia that have a certain percentage of American content and most impactful by preventing Russia from accessing semiconductors.1
Fear often leads investors to behavioral traps, such as trying to time the market.
Study after study shows that the average investor is a poor market timer. Either investors are tempted to invest when the market is doing well or sell when volatility sets in.
Instead of allowing media and fearful headlines to push you to make quick investment decisions, learn about potential solutions with our guide, “How Market Timing Can Affect Your Retirement Plan2.” This guide seeks to explain these behavioral traps and offers potential solutions. If you have $500,000 or more to invest and want to learn how you may be able to avoid these mistakes today, click on the link below to get your free copy:
Download Zacks Guide, “How Market Timing Can Affect Your Retirement Plan.”2
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Russia does provide about 50% of all gas imports to Europe, which also puts Europe at risk should sanctions result in tit-for-tat economic penalties. But at the same time, curbing exports of natural gas to Europe would ultimately be another penalty on Russia, which relies on those revenues. In short, I think Russia has the most to lose from an invasion, but that won’t necessarily stop them from taking action.
As for the capital markets, I think I do not see a significant impact either way. Russia makes up a tiny portion of the global economy, and corporate earnings would likely feel close to zero impact from this regional conflict. We can also look back to recent history for some insight – recall that Russia invaded and subsequently annexed Crimea in 2014, which was then part of Ukraine. That invasion took place in February and March of 2014. As readers can see on the chart below, the S&P 500 showed no visible impact from that invasion, and in fact, trended nicely higher throughout the year.
I realize that the idea of an invasion, particularly involving Russia, can be unsettling. But it’s important to think in the context of the global economy and global corporate earnings, neither of which I believe will feel an impact no matter the outcome.
If situations like these are causing you to make investment decisions based on fear instead of data, I recommend reading our guide, “How Market Timing Can Affect Your Retirement Plan.”4
This guide seeks to explain emotional and behavioral traps that investors can fall prey to and offers potential solutions to common mistakes that many self-managed investors make.
If you have $500,000 or more to invest and want to learn how you may be able to avoid these mistakes today, get your free copy by clicking on the link below:
Disclosure
2 ZIM may amend or rescind the “How Market Timing Can Affect Your Retirement Plan” guide for any reason and at ZIM’s discretion.
3 Fred Economic Data. February 4, 2022. https://fred.stlouisfed.org/series/SP500#0
4 ZIM may amend or rescind the “How Market Timing Can Affect Your Retirement Plan” guide for any reason and at ZIM’s discretion.
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