NOTE: This article was filed prior to Russia invading the Ukraine but has been edited to reflect the change in circumstances.
Wall Street has little recent history to go from, but two things are very likely
On Valentine’s Day, one news headline screamed “Markets Could Dive on Russia Incursion” and another predicted “A Market Crash in 2022.”
Another article suggested that an invasion by Russia could cause the Fed to become more dovish and hold off on raising rates, thereby benefiting markets, especially tech stocks. In other words, market pundits have no idea, right?
Well, here are two predictions that are very likely to happen sooner rather than later now that Russia has invaded Ukraine.
The Price of Oil Will Certainly Rise
The price of oil is expected to rise absent any invasion of Ukraine – and the invasion is likely to just hurry things along.
First, you should know that the price of oil is actually pretty close to $100/barrel, a level not seen since 2014. So, suggesting it will be there soon is not really going out on a limb.
Second, global inventories are already tight, as outlined in a report released on Feb. 11 from the International Energy Agency that warned that the crude market was set to tighten even further.
Finally, since Russia is a major supplier of natural gas to Western Europe, any invasion might send natural gas prices skyrocketing – and oil prices following suit.
Volatility Will Certainly Rise
As with the prediction that oil will rise north of $100/barrel, the prediction that volatility will rise is not too difficult to see for a couple of reasons.
First, volatility is rising already.
And if there is one thing Wall Street despises, it’s uncertainty.
How Might Markets React
Notwithstanding rising oil prices, increased volatility and of course what an invasion of Ukraine will mean for Ukrainians and Russians, it is near impossible to suggest what markets might do, in part because we have very little recent history from which to draw parallels.
Going back 20-30 years, we can remember that:
After the attacks on Sept. 11, 2001, the S&P 500 dropped almost 5% in one day on the way to a decline of over 11% in 11 days. Markets recovered 31 days later.
After Iraq’s invasion of Kuwait on Aug. 2, 1990, the S&P 500 dropped 1.1% in one day on the way to a decline of over 16% in 71 days. Markets recovered in 189 days.
So, What Should Investors Do?
Rule #1: Talk to your financial advisor before you do anything.
Rule #2: It’s never a good idea to sell into a panic.
Rule #3: See Rule #1.
This information should not be construed by any client or prospective client as the rendering of personalized investment advice. All investments and investment strategies have the potential for profit or loss, and there can be no assurance that the future performance of any specific investment or investment strategy including those discussed in this material will be profitable or equal any historical performance levels. Investment strategies such as asset allocation, diversification, or rebalancing do not assure or guarantee better performance and cannot eliminate the risk of investment losses. Any target referenced is not a prediction or projection of actual investment results and there can be no assurance that any target will be achieved.
Kent Patrick is with Bush Wealth Management.
