The Russian Invasion & Market Implications
Last night Russia formally communicated its intent to invade its neighboring country, Ukraine. Russia instigated this conflict despite weeks of global condemnation and the threat of severe sanctions from Western allies. In response to Russia’s aggression, President Biden addressed the nation this afternoon to announce additional sanctions on specific Russian businesses, industries, and individuals. Other NATO countries are following suit, and Russia has threatened to retaliate.
Global markets reacted today by bidding Russian financial assets significantly lower with prices of some commodities sourced in Russia (e.g. oil) and Ukraine (e.g. wheat) spiking. Other assets were subject to increased volatility as traders and other market participants repositioned their portfolios moving funds between perceived risk assets and safe harbor investments, and in some cases back again, as they absorbed the news and its potential implications.
It is Madison’s view that equity markets have been rationally pricing in the potential for a Russian invasion of Ukraine and its implications for several weeks now. A geopolitical disruption of this magnitude with its accompanying uncertainty, along with the prospect of higher prices and interest rates, certainly could negatively impact future economic growth. This noted, the S&P 500 today is currently trading back to mid-June of 2021 levels and is still up over 9% over the one-year period.
We also find some reassurance that history points to short-lived volatility around geopolitical events, as shown in the below data provided by J.P. Morgan Asset Management:
At Madison, our investment discipline tells us to avoid trying to time the market or significantly reduce risk assets in times of turbulence. However challenging, we have found the best days in the market often come on the back of the worst days, and those are days investors can’t afford to miss as we focus on realizing long-term financial goals. Volatility is a normal component of investing in financial markets, where one must expect to encounter the unexpected. While accepting this doesn’t necessarily make market volatility easier to endure, working with an experienced, collaborative team of financial professionals can. We have accounted for market volatility in Madison’s financial planning process and the well-diversified and risk-customized portfolios we build for our clients.
Our wealth advisors and portfolio managers are hard at work monitoring current events, reviewing portfolios, and making adjustments we view as prudent. If you are interested in discussing how Madison is navigating today’s challenges, please let us know. We are here to help.