The Russia-Ukraine conflict has sent shockwaves through the financial markets. Global equities are choppy. Commodities prices including oil have skyrocketed. The S&P 500 experienced its largest correction since March of 2020 and there's likely more volatility ahead.
This isn't the first time we've seen a geopolitical event rattle the markets. While stock market fluctuations are normal, they cause plenty of fear and uncertainty amongst investors, understandably. How has the S&P 500 held up during past conflicts?
As you can see, it's a mixed bag. There's a ton of red on the above chart.
But taking the numbers a step further, we need to consider whether the economy entered into a recession during or following each of the above events. The results: If no recession, stocks held up well. Stocks were up on average around 11% one year later.
So the question going forward: Will the U.S. enter into a recession in the near-term?
We don't believe so. Consumption makes up 70% of our economy. In 2021, the U.S. economy grew 5.7%. A tremendous number. In 2022, many research firms forecast strong GDP growth between 3% and 4%. The American consumer is strong and continues to spend money. Here's what LPL Research had to say a few days ago:
"Vaccination rates, COVID-19 cases, and hospitalizations have all improved in recent months and the data proves it. Google mobility trends for everything from theme parks to movie theaters are higher now than last year. Even though remote work seems to be available for many white-collar jobs, Google mobility trends for places of work is also up since December. These stats bode well for consumer spending and business investment, two key components to economic growth and corporate profits."
Now for Russia's impact. The strain on global oil supply will raise prices and hurt consumers in the U.S. That should not be overlooked. But it's important to note that the U.S. economy has minimal direct exposure to the Russian economy. A significant decline in the Russian stock market also has little impact on the MSCI Emerging Markets Index, which might end up dropping Russia from the index altogether:
While this conflict is serious and the sell-off may continue, we feel now is not the time to run for the hills. Corrections and bear markets are part of investing. That's why having an investment asset allocation built to survive bull and bear markets alike is so important.
Uncertain times like these can cause investors to make unwarranted changes to their portfolio. Before doing so, consider the above and make sure your actions align with your financial plan. As always, give us a call with any questions you have.