by Kenneth J. Entenmann
Courtesy ARCC
As the world watches the events unfold in Ukraine, it goes without saying that what we are witnessing is tragic and the human toll is something that cannot be understated. Military action always brings uncertainty, and it is difficult to assess the full extent of the situation while it is unfolding. The Russia-Ukraine conflict is no exception, and it has resulted in stunning market volatility.
However, strictly from an investment and economic perspective, geopolitical events rarely cause major bear markets or recessions. The markets tend to view them like natural disasters. That is, they are highly regionalized, they cause significant loss of property and life, but tend to be short-lived.
Historically, dating back to the Iraq invasion of Kuwait in 1990, there have been nine global military “interventions.” The time period from the onset of the event and the market bottom ranges from 0 days to 70 days. For example, the market bottomed out 10 days after the 9/11 attack in 2001. The average decline in the S&P 500 is -6.9 percent. Importantly, the markets tend to recover quickly.
The average one-month return after the bottom is 2.2 percent, the three-month return is 5.4 percent and the one-year return is 13.5 percent. Like all geopolitical events, the Russia-Ukraine conflict is impossible to predict. That said, it is likely to follow history’s pattern for a few reasons.
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