Financial markets and the economy entered 2022 with a mixed bag.
Does the invasion of Ukraine really matter?
Yes, in a big way.
It reshuffles the world order at a level we haven’t seen since the fall of the Berlin Wall. As always, geopolitical events come with economic implications, some of which can be profound. Over the long term, financial markets behave based on the structure and performance of the global economy. Often performance is derived from structure, and a restructuring of some magnitude is underway.
Will the invasion impact me and my family?
You’ll likely see it first at the gas pump and the grocery store shelf.
Russia is a major exporter of energy and commodities from which food, gasoline, and other necessary products are derived. Europe is highly dependent on Russian supplies, and therefore would be most hurt by a cutoff caused by international sanctions. But commodity markets are global, so a reduction in supplies anywhere in the world would translate to higher prices in the U.S. This adds to our current challenges with inflation.
How will financial markets respond? What can we learn from the response?
History provides some insight on what to expect.
In the past, markets often reacted immediately to negative geopolitical headlines with a burst of selling. Then, a burst of buying occurred after other investors saw opportunities in lower markets. Quick recovery often created the impression that the geopolitical trigger for the selloff was resolved. Sometimes that impression was correct; other times it was wrong. Over time, the longer-term economic implications of the invasion will get digested by markets and equilibrium will be found. With history as our guide, that should provide a base from which markets continue their march higher. It’s impossible to predict when or at what levels that will happen, so it’s best not to try. Markets currently appear to be looking past the invasion, but initial headlines and early market reactions to them are frequently wrong when a situation is as fluid
as this one.
What should investors do now?
"Having said that, our general recommendation to investors is don’t panic!"
Every investor is unique, so each should consider their own circumstances when making decisions. Having said that, our general recommendation to investors is don’t panic! What seems absolutely true today, whether positive or negative, might look completely different tomorrow. That has always been the case, and investors with diversified portfolios who toughed it out during shifting geopolitical events in the past have been rewarded for their patience. Still, challenges lie ahead. First there was COVID, then inflation, and now geopolitical upheaval. That’s a lot for markets to digest in the near term, so buckle up for a bumpy ride. And please don’t hesitate to seek guidance from your financial advisor. These are the circumstance when they can help most.
Chief Market Strategist
CUNA Mutual Group
The views presented here are the author’s alone and not necessarily representative of opinions held by CUNA Brokerage Services, Inc. or any affiliated entity. CUNA Mutual Financial Advisors is a marketing name and service of CUNA Brokerage Services, Inc. (CBSI), 2000 Heritage Way, Waverly, Iowa 50677, toll-free 866.512.6109, member FINRA/SIPC, is a registered broker/dealer in all fifty states of United States of America and a registered investment advisor affiliates of CUNA Mutual Group. Nondeposit investment and insurance products are not federally insured, involve investment risk, may lose value and are not guaranteed by any financial institution. Representatives are registered, securities sold, advisory services offered through CBSI. CBSI is under contract with the financial institution through the financial services program, to make securities available to members and individual investors. For more information please call 800.356.2644, ext. 665.8486.