Only a few days changed the course of Russia’s invasion of Ukraine, but in very different ways for the world and Wall Street. Hundreds of people have been slain, and more than half a million have left their homes to seek asylum in neighboring countries since the invasion began last week. The already horrific death toll will almost certainly rise in the days and weeks ahead as Russian forces intensify their bombing of Ukrainian towns. However, Wall Street is unconcerned about the situation. Money and profits matter in New York City’s trading rooms; human pain isn’t. As a result, investors’ all-consuming pessimism has swiftly given way to optimistic confidence during the last week.
In summary, anxieties that the crisis might escalate into a worldwide battle were replaced with the dread of something considerably less disastrous. Rather than imminent global catastrophe, Wall Street’s money gurus today view NATO as more vital than ever and a feeble-looking Russia despised by much of the globe. As a result, many people believe that, while the battle will be terrible, it will not be as horrible as initially feared.
“Initially, the invasion was viewed as a global struggle, but investors shrunk it to a regional conflict,” explains Cresset Capital’s chief investment officer, Jack Ablin. “Sentiment has improved after the situation has been reexamined.”
It’s worth looking at what transpired recently in the stock market. Long before the invasion, Wall Street was concerned about the possibility of a rate hike by the Federal Reserve later this year. Investors fled the stock market due to this fear, sending the S& P 500 index down about 8% in the year to Friday. The majority of this drop occurred before the Russian invasion began early last week. The Ukraine situation exacerbated the market’s losses. “Investors were attempting to price in two things at the same time,” Art Hogan, chief market strategist at National Securities Corporation, explains.
To put it another way, Wall Street stock dealers were weighing the consequences of a European conflict, as well as the possibility of increased interest rates. Both variables can obliterate or at the very least damage corporate earnings. So part of what drove last week’s market volatility was figuring out what would happen, which put investors into a panic spiral that peaked in the middle of the week. “Except gold and energy, things came to a head-on Wednesday with a crescendo of selling,” Hogan adds.
Concerns that Russian oil supplies will be affected pushed the price of Brent crude oil, the European benchmark, far above $100 a barrel for the first time since 2014. As investors sought a safe refuge for their money, gold rose 3.9 percent to nearly $1,900 per troy ounce. However, on Thursday following the invasion, the market mood shifted to risk-on, indicating that they were again eager to wager on so-called risky assets like equities. In sum, their fears about the Fed and the war wreaking havoc on Wall Street were unfounded. In the eyes of bankers, both previously significant problems were downplayed. But, of course, the situation didn’t end there, as worrying news began to circulate. On the other hand, the underlying trend was considered as encouraging and contributed to the notion that the global economy’s prospects are brighter than previously thought.
The United States, the European Union, the United Kingdom, and other western allies took the unusual step to cut several Russian banks’ access to the international payment system known as SWIFT. As a result of this action, Russia’s economy will become further crippled, as capital will not flow freely into the nation. “Rather than going to war, they decided to strangle Russia’s economy,” says Marc Chandler, chief market strategist at FX broker Bannockburn Global Forex. The ruble has plummeted to a new low after the SWIFT suspension. It is presently worth less than one cent in the United States. The Russian central bank more than doubled its primary borrowing rate to 20% to safeguard its currency. Money wasn’t the only thing that changed. The realities on the ground in Ukraine appear to have evolved significantly during the weekend. For the time being, the Russian military’s progress has halted in the face of intense opposition, and Kyiv and Kharkiv, Ukraine’s two major cities, remain under Ukrainian control. The news that Russian President Vladimir Putin has put his nuclear deterrent forces on high alert was perhaps the worst. This sparked fears that Russia was planning to intensify the confrontation.
However, cooler heads prevailed, and the US did not raise its nuclear status in response. “This isn’t chess; it’s poker,” Chandler explains, “and the US called Russia’s bluff.” Separately, Sweden and Finland have shown an interest in joining NATO, the Cold War military alliance commanded by the United States. Meanwhile, Germany declared that it would boost military spending to 100 billion euros ($112 billion) in this year’s budget. Several American presidents have requested it, but the most outstanding European economy has refused to comply. Germany also indicated it would provide guns to Ukraine, reversing a long-standing post-World Combat II policy of refusing to transfer weaponry to war zones.
According to Chandler, an energized NATO will result in the additional military being stationed in Europe semi-permanent. A more united military front, in particular, may induce other prospective opponents to shun a fight. However, the battle is unlikely to conclude anytime soon. Russia’s offensives on Ukraine’s most significant cities are still going on. It’s also conceivable that the combat will get more intense. However, the financial market has predicted that the violence would not spread far beyond Ukraine’s borders. That, of course, might alter in an instant.
Consequently, financial markets appear to be quite tranquil, which should offer investors some comfort. “Considering what was possibly at stake—nuclear war,” Chandler writes, “the market’s response has been extraordinarily orderly.” “We have a brighter view now than we had a month ago.”
