On Friday, investors got a taste of the kind of market shock that could occur if Russia invaded Ukraine.
The spark came as Jake Sullivan, the White House national security adviser, on Friday afternoon warned Russia Ukraine could be attacked “any day now,” With the Russian military ready to start the invasion if Russian President Vladimir Putin orders it.
US stocks extended the sell-off to end sharply lower, with the Dow Jones Industrial Average,
Drop over 500 points and S&P 500 SPX,
Sink 1.9%; Oil futures CL.1,
It jumped to a seven-year high with Crude Oil at $100 a barrel. A round of buying interest in traditional safe haven assets caused Treasury yields to fall while gold, US dollar and Japanese yen prices rose.
Putin and US President Joe Biden were scheduled to speak by phone on Saturday in an attempt to defuse tensions.
Analysts and investors debated the lasting effects of the invasion on financial markets. Here’s what investors need to know.
Energy prices are set to rise
Energy prices are expected to rise in the event of an invasion, and the price of crude oil is likely to send above the $100 per barrel threshold for the first time since 2014.
“I think if there was a war between Russia and Ukraine, $100 a barrel would be almost guaranteed,” Phil Flynn, a market analyst at Price Futures Group, told MarketWatch. US benchmark oil futures CL00,
It closed at a seven-year high of $93.10 on Friday, while Brent crude, BRN00,
The global index closed at $94.44 a barrel.
“It is likely that we will rise strongly and then decline. The $100 per barrel region is the most likely because stocks are tighter than they have been in years, noting that Friday’s monthly report from the International Energy Agency warns that the crude oil market is about to tighten makes any Possible disruption to supplies “It’s all more ominous.”
Beyond crude oil, Russia’s role as a major supplier of natural gas to Western Europe could drive up prices in the region. Overall, higher energy prices in Europe and around the world would be the most likely way as the Russian invasion would fuel volatility in financial markets, analysts said.
Federal Reserve vs. Quality Journey
Treasurys are among the most popular havens for investors during bouts of geopolitical uncertainty, so it was no surprise to see yields slide across the curve on Friday afternoon. Treasury yields, which move in the opposite direction to prices, were vulnerable to a pullback after rising on Thursday in the wake of a hotter-than-expected January inflation report that saw traders hike interest rates by the Federal Reserve starting from a potential halving. Elevation point in March.
Analysts and investors discussed how the fighting in Ukraine could affect the Federal Reserve’s plans to tighten monetary policy.
If Ukraine comes under attack, Jay Hatfield, chief investment officer at Infrastructure Capital Management, said in an email that “it adds more credibility to our view that the Fed will be more dovish than the market currently thinks because the war will make the outlook more uncertain.” comments.
Others argued that higher energy prices would likely confirm the Fed’s inflation concerns.
Stocks and geopolitics
The resulting uncertainty and volatility could lead to a further sharp slide for stocks in the near term, but analysts noted that US stocks tend to weather geopolitical shocks relatively quickly.
“You can’t underestimate what today’s news could mean for this part of the world and the people who have been affected by it, but from an investment standpoint we have to remember that historically major geopolitical events haven’t moved stocks much,” said Ryan Dettrick, chief market strategist at LPL Financial. , on a note, referring to the chart below:
In fact, a learned consequence of past geopolitical crises may be that it is better not to sell in a panic, Written by Mark Hulbert, Mark Hulbert in September.
He cited data collected by Ned Davis Research studying the 28 worst political or economic crises over the six decades before the September 11 attacks in 2001. In 19 cases, the Dow was higher six months after the crisis began. The average six-month gain after all 28 crises was 2.3%. In the aftermath of the events of September 11th, which left markets closed for several days, the Dow Jones fell 17.5% at its lowest level but recovered to trade above the September 10 level by October 26, six weeks later.