Of course, the consequences of Russia’s aggression go far beyond the narrow constraints of this question.  In the short run, Ukrainian lives and livelihoods will be lost.  Homes and businesses will be destroyed. Freedom and self-determination will be eroded in this and possibly other parts of the world.  It will take many months, if not years, for some of these broader issues to play out including how liberal democracies will respond to provocations by authoritarian regimes, like Russia and China. 

Even so, many clients need reassurance during these periods of disruption.  What follows is not a prediction of the future, but a review of the past.  The table below shows some of the major conflicts since World War II and the subsequent market reaction:

We should not be surprised by sharp declines immediately following a crisis as investors are trying to digest the potential impact upon their assets. But as “the smoke clears”, investors begin to focus on the fundamentals that drive market values.  Within a month of these historic aggressions, average market decline is a mere 1.7%.  Within six months, we find a market gain averaging 6.7%, and one year later the market is up an average of 17.1%. 

Looked at individually, the two Chinese characters used to form the word “crisis” are dangerous and opportunity.  It is perfectly natural for us to view any crisis from the perspective of human loss.  But in the sterile world of the stock market, the question ultimately centers on the opportunities that may present themselves. 

On the predictive side, Europe is more vulnerable to the current Russian provocation.  Europe already pays 5x to 6x that of the U.S. for natural gas because of their dependence upon Russian supplies.  The U.S. is trying to fill some of the expected shortfall by directing exports of our abundant natural gas supplies to European allies.  They also rely upon imports of Russian and Ukrainian commodities like aluminum, coal, nickel, and titanium.  Disruptions will impact supply chains and contribute to higher inflation… primarily in Europe.  Sanctions upon Russia will further erode their fragile economy and could contribute to social unrest among the deprived population, but Putin’s repression of domestic dissent has been effective during his more than twenty-year reign. 

In the short run, to paraphrase the great Betty Davis, “Fasten your seatbelts; we’re in for a bumpy (ride)”.   My guess is the markets will weigh the fundamentals and decide the odds of the current situation spiraling into a recession-inducing global conflict are exceedingly low.  In the long run, I believe this will be just another dip in the long road of rising value that helps sustain our clients’ retirement security.  If you need more reassuring words, don’t hesitate to call anytime!