March 3, 2022
Dear Clients & Friends,
The signs of an economic recovery are hard to see right now as spring approaches, clouded by the Russian invasion in Ukraine. Democracy is under attack and innocent lives are tragically being lost. This is a tough time for all of us right now as compassionate human beings and as investors. Russia’s aggression is unsettling and the images of the humanitarian crisis in Ukraine are heartbreaking. My thoughts and prayers go out to the people of Ukraine and anyone else impacted by the war. While we keep one eye on overseas developments, as long-term, goal-focused investors, it is important to focus on the fundamentals of the U.S. economy and the stock market to stay invested.
Geopolitical uncertainty can be tough for investors to manage. The natural impulse for many is to sell their stock positions and buy back into the market when things calm down--which history clearly shows is a flawed strategy. This is the definition of “market timing”, which we all know doesn’t work. As difficult as it may be to see the green shoots through the fog of war, these periods usually end up representing good buying opportunities for investors.
Stocks have historically proven to be quite resilient to major geopolitical events and this time will be no different, even if the wait is uncomfortable. Over the past 70 years, only three major geopolitical events took the S&P 500 Index more than nine weeks to recover its post-event losses: 1) Pearl Harbor (307 days), 2) the onset of the Korean War (82 days), and 3) Iraq’s invasion of Kuwait (189 days, when the US was already in a recession). None of these events seems comparable to the Ukraine conflict. Looking at all major geopolitical events since World War II, the average post-event loss for the stock market has been just 5%, with an average recovery time of less than seven weeks. The U.S. economy’s track record of resilience and corporate America’s ability to adapt are unparalleled.
However, the war in Eastern Europe will carry an economic cost for the United States, though it should be modest. Although U.S.-Russia trade is minimal, we use very little Russian oil, and our banks hold a negligible amount of Russian assets, higher global oil prices will most certainly be felt by U.S. consumers. But it shouldn’t be enough to stop us from spending, especially as COVID-19 restrictions disappear. For Europe, the cost will be higher due to the continent’s greater reliance on Russian energy.
While it’s impossible to know how this conflict will play out, the outlook for the U.S. economy and corporate profits remains bright. Stocks have become more attractively valued following the latest correction, interest rates remain low, the Federal Reserve will likely now take a go-slow approach with its rate hiking campaign, and markets have historically proven resilient to major geopolitical events. Let’s be patient and stick to your investment plan.
Please contact me directly if you have any questions. As always, thank you for your trust and confidence!
-Nick
Important Information
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
All data is provided as of March 1, 2022.
Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities.
All index data from FactSet.
This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.