The Russia Ukraine war

Key Takeaways

  • Markets are volatile but generally return to equilibrium within less than sixty days, even during major geopolitical stressors.
  • Oil and other commodities are impacted strongly by the current crisis. Analysts predict impacts likely to be short-lived.
  • Research shows wars do not always lead to tightening financial conditions or lowered returns.

Markets crave stability and certainty. War is one of the most volatile events possible. We’ve watched stocks slingshotting up and down in the wake of Russia’s invasion of Ukraine. Investors, at first scared into correction territory on the morning of Feb. 24, then piled back into US stocks— by the end of the day, the NASDAQ, S&P 500, and Dow Jones rose 3.34%, 1.5%, and 0.28%, respectively. Oil reached nearly $101 per barrel, as many expected, given Russia’s status as the world’s third-largest oil producer and now-uncertain oil trade.

Rising oil is likely to further drive inflation in the US, which is currently standing at 7.5%, year-over-year. The Federal Reserve is expected to raise interest rates to combat inflation. However, refraining from introducing more volatility into the current geopolitical pressure-cooker, Fed officials have announced that they are likely to raise rates only by a modest 0.25%.

Goldman Sachs sent clients a note saying geopolitical risk has risen to its highest level since the 2003 Iraq War.  Russia’s invasion of Ukraine holds many risks but It’s highly unlikely to turn into a larger war in the Baltics due to NATO expansion throughout the region. However, the war is likely to affect energy and commodity prices due to severe sanctions being placed on the Russian economy, not only a large energy producer but also a source of many other goods, including grains and oilseeds, diamonds, fertilizers, and various metals. 

Russia and Ukraine account for 29% of global wheat exports, 80% of sunflower oil, 40% of European natural gas, 40% of palladium, 30% of diamonds, 13% of fertilizers, 15% of titanium, 10% of gold, and substantial amounts of various other commodities. Disrupted economic activity in Europe may result in increased political tension in various other places around the world, particularly in developing countries with economies already battered by the pandemic. Goldman predicts that this likely isn’t too much of a cause for worry.

Fortunately for US residents, research shows that wars do not always lead to tightening financial conditions or lowered returns. In fact, Goldman Sachs reports that financial conditions sometimes improve or only reduce slightly. After the Gulf War and 9/11, their Financial Conditions Index (FCI) improved by 40-60 basis points. They only decreased by less than 10 points during the Kosovo war and Crimea annexation, situations in Eastern Europe that were more similar to the current crisis. 

US investors are also encouraged to refrain from overly worrying about their portfolios. The CFA Institute produced research in the below graphic showing that risk generally tightens among all investment categories once wars begin, and returns are often improved upon in stocks while they are reduced in bonds, notes, and other credit products. Inflation usually rises, and cash produces lower performance during wartime.

For investors with more immediate worries due to rapid declines in various public equities, their concerns are most likely short-lived. The below graphic from LPL research shows that markets usually decline immediately after a market shock event, bottoming-out 22 days after, and go on to recover within 47 days of the shock.

Suggestions to help protect your portfolio


As is often the case, a well-diversified portfolio in multiple different sectors, asset classes, and regions is most likely to weather shocks to any particular risk or geopolitical stressors. War is another such case where diversification can be useful. It’s recommended that investors further diversify their portfolios to protect against potential downstream events from the current crisis.

Buy US

The US remains a haven of stability for global capital concerned with the current crisis and its effects on Europe, the Middle East, and other regions near Russia & Ukraine. The US dollar is likely to strengthen, and US-based businesses will benefit from increased capital outflowing from Europe and Eastern Europe and into US markets.

Buy commodities

Commodities usually provide solid returns during periods of global instability. Gold is known to rise during wartimes, and given Russia’s source as a provider of metals, energy, and other commodities, it’s likely that commodities, in general, will rise and help provide a source of economic stability amidst volatility.

Remain cool-headed

As data above has shown, market volatility due to war usually balances out and equilibrium is restored. While war is frightening for many and a tragedy for us all, it is never a time for panic.

Ways to help the people of Ukraine

There are different ways we can all assist the people of Ukraine. UNICEF, the UN Refugee Agency (UNHCR), the International Committee of the Red Cross, Doctors Without Borders, and the International Rescue Committee, are all working in Ukraine and neighboring countries.  

1. Source: Yahoo! Finance
2. CNBC, “The market has adjusted its views of how the Federal Reserve will raise interest rates,” 2-23-2022
3. Goldman Sachs Economics Research, “US Daily: Implications of the Russia-Ukraine Tensions for the US Economy and Fed Policy,” 2-24-2022
4. Reuters, “Factbox: Commodity supplies at risk as Russia invades Ukraine,” 2-24-2022
5. Investopedia, “How the Modern Stock Market is Affected by War,” 1-31-2022
6. Barrons, “War Is Terrifying for Markets. Here Is Some Advice for Investors,” 2-24-2022

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