Broker Check


| March 01, 2022

The expression “May you live in interesting times” is debated as to its origins and it’s meaning.  Was it meant to be a blessing or a curse?  One thing is for certain, we are living in interesting times these last two years.  Top of mind to anyone with a pulse and a television or internet connection, is the conflict involving Russia’s invasion of Ukraine.  My inbox has been bombarded with every investment company delivering their thoughts and commentary on the issue.

Courtesy of Jeffrey Schulze, an Investment Strategist with Clearbridge Investments, below is a concisely summarized view held by most economist on this conflict’s impact on the markets and our own economy.  Additionally, please take time to review the slides I’ve highlighted.  These may help address concerns about how wars and crises impact your investments and how market corrections look 12 and 24 months later.

Historically, Geopolitical Events Have Been Short-lived

Going back to World War II, the median market sell-off has been 5.7% after a geopolitical shock.

On average, it has taken three weeks for the market to reach a bottom and another three weeks for it to recover those losses.

Ultimately, the market isn’t driven by geopolitical events, but by the economic landscape.

Given the robust economic backdrop, the fallout specifically from this situation should be relatively short lived with the markets keying in on Fed policy and interest rates in order to dictate medium-term momentum.


U.S. Economy Remains Robust

The US economy is re-accelerating post-Omicron. While the invasion of Ukraine poses a minor headwind to growth, forward momentum is robust (GDP Now is 0.6% which is impressive considering January headwind – and should continue to strengthen as recent releases have been strong: IP, retail sales, and business inventories).

Importantly, the equity market’s YTD decline is explained by a contraction in P/E multiples as 2022 EPS estimates have risen by 2%. Earnings are well supported with nominal GDP likely approaching 10% this quarter.


Impact on Fed Policy Probably Negligible

The Fed has fulfilled its employment mandate (unemployment is 4%) and is focusing its entire attention on inflation. With inflation risks skewed to the upside, the Fed will likely not deviate materially from the market’s pricing of rate hikes from this situation. At present, the market is pricing in 5.9 hikes for 2022 (down from 6.4 hikes). While we’ve been more inclined to see a more dovish Fed than the market is pricing, we continue to believe that the Fed will slightly undershoot expectation.

Importantly, the Fed puts more weight into Core inflation rather than Headline because food and energy tend to mean revert and Fed policy acts with a lag. Put differently, higher materials/energy costs should not sway the Fed in a “material” way as the effects from tighter monetary policy generally kicks in when food/energy prices are deflating.

The Russian invasion of Ukraine may create a more dovish rate scenario, in particular with the ECB. We will get further clarity from Fed Chairman Powell when he speaks to Congress next week.


Core Inflation Not Likely to Rise Significantly Due to This Situation

Risk-off sentiment and uncertainty should put a bid under the dollar which historically has had a negative correlation with CPI.

Continued supply chain issues


⚬ Goods and material flow out of Ukraine and Russia will be halted and could exacerbate the supply chain issues many companies are facing (example: steel for autos).

Natural gas and oil price spikes will have a material effect on US headline inflation and minor impact on core inflation.



⚬ Pricing pressures should remain sticky here due to potential supply disruptions, precautionary hoarding, and an embedded geopolitical premium.

In the Weekly Market Review, the 2nd paragraph does detail the significance of Russia’s oil and gas industry and the 3rd paragraph highlights the market’s surprising finish to last week’s trading.  This week’s Notable Numbers are very interesting and surprising, especially number 2’s sobering analysis of Social Security benefits received vs paid in over a working career.

Click Here for the Weekly Market Review 

Click below to see slides:

Market Correction

Wars & the Stock Market

Crisis & Events Since 1970

As always, we hope you find this week’s Weekly Market Review both informative and interesting.  Have a good week!

Trevor N. Coe, CFP®