Market Consequences of War

March 04, 2022

After a period of Russian military buildup on the Ukrainian border and unfruitful diplomacy, Russia invaded Ukraine on February 24th. In response, the United States, United Kingdom, and European Union have levied sanctions targeting Russian banks, Russian oligarchs and their families, Russian sovereign debt, and the Nord Stream 2 gas pipeline. Additional actions include Russia-wide restrictions on sensitive U.S.-origin software, technology, and equipment. We are hopeful these sanctions and restrictions will help deter further actions; however, it is unlikely Putin didn’t see them coming.

Not surprisingly, the full-blown assault on Ukraine jolted the market, layering additional downside on top of the losses stocks incurred the months prior. Year-to-date, the Russian stock market (MSCI Russia Index) and Ukrainian 10-year Government Bond have plummeted, falling 58.1% and 69.7%, respectively.

Source: Bloomberg. Chart represents YTD performance as of 03/03/2022.

S&P 500 and NASDAQ futures tumbled overnight after the invasion, but by the end of the day on February 24th, markets were higher than before the military action began. Volatility has persisted, but weakness has presided mainly in the international developed and emerging stock markets. On the other hand, safe havens such as bonds, gold, and the U.S. dollar have lived up to their expectations.

Source: Bloomberg. Data represents the total return from market close on 02/23/22 to 03/03/22. Gold is represented by the XAU Currency, the US Dollar is represented by the DXY Currency, and U.S. investment grade bonds are represented by the Bloomberg US Aggregate Bond Index.

Chief market strategist at LPL financial, Ryan Detrick, analyzed 22 major nonfinancial shocks, ranging from Pearl Harbor to the Kennedy assassination. These geopolitical events on average led to a one-day loss of 1.1% for the S&P 500, and total drawdowns averaged 4.8% before bottoming and climbing back. Additionally, on average, it took roughly 20 days before finding a trough and 43 days to rebound back.1

These past events have taken lives and extracted a maximum toll on human suffering; however, surprisingly, events such as terror attacks, wars, and assassinations haven’t been the main drivers of the market. Like the war in Ukraine, how could it be that horrific geopolitical tides haven’t thrashed the market further? The short answer is that corporate profits and cash flow drive the market higher or lower over time, and the impact of the typical geopolitical event isn’t large enough to affect equity valuations over the long term.

As it stands, Russia constitutes just 0.4% of the MSCI All-Country World Index and only 3.6% of the MSCI Emerging Markets Index. Similarly, Russian and Ukrainian debt comprises less than 5% of major emerging market bond indices.2

The larger concern worldwide comes from Russia’s dominant position in the oil and natural gas industry. Indeed, Russia accounted for 12.1% of global oil production in 2020 and accounted for an even larger share of natural gas production (16.6% in 2020), which put it second only to the United States (23.7%). This is where a larger reaction to the international developed market is taking place. Russia supplied 29% of Europe’s crude oil imports and up to 34% of gas imports in 2020, with Germany being most dependent on Russian gas (65% of 2020 consumption).3

Commodity markets have reacted swiftly to the news. From the onset of the invasion till March 3rd, Brent crude oil has rocketed from $94.05 a barrel to $110.46 a barrel, a 17% increase. The rise in energy prices has stoked fears that peak inflation may not be behind us. Federal Reserve Chair Jerome Powell was recently quoted in the House Financial Services Committee saying, “I am inclined to propose and support a 25 basis-point rate hike.” According to Bloomberg, Fed Fund futures are now implying at least five interest rate hikes by the end of 2022, down from six midway through February.

Through the lens of social media, the world is watching in real time as these disturbing events unfold before our eyes. Uncertainty will likely remain elevated as market participants try and price in the bombardment of updates. We recommend retaining balance across portfolios and staying the course. Timing the market is an extremely difficult endeavor, and one that could have unintended consequences for a financial plan.

Our thoughts and prayers are with the country of Ukraine and all who are impacted by this tragedy.


  1. Bloomberg. History Shows War Shocks Have Modest Impact on Stocks” by Barry Ritholtz
  2. PMC Research. “Investment Implications: Russian Invasion of Ukraine” by Dan Homan
  3. Invesco. “Uncommon Truths”

Important Disclaimers and Disclosures