War's Impact on Markets - No Longer Predictable

Banish Fear (of) Markets - Issue 8/2022 - Market Period 21 Feb to 25 Feb 2022

It seems callous to speak about the impact of war on the stock market when Ukrainians are fighting for their lives. So I'll make it brief this week and just focus on the essentials.

I ended last week's newsletter with "If war breaks out, all bets are off". Indeed war has started, so what now?

First, the usual conventional market reactions came into play. Oil prices shot up, as well as gold prices. No surprises for the flight to "safe-haven" asset like gold.

Cryptocurrency watchers were intrigued about how cryptocurrencies would react to their first war. Well, for sure, it did not act like a safe haven asset (how could it, it's a "risk-on" asset). But its volatility is no more than a normal day's though trading volumes were high.

The stock markets had an interesting reaction. Asia swooned on news of the Russian invasion, as did Europe. The US opened on Thursday with almost every stock heavily in the red too, and I went to bed in Asia prepared to see a bloodbath the next day.

The surprising thing was the markets actually closed higher when I checked them the next day. Nasdaq and closed 7% up and the S&P500 closed 3% up from its opening price on Thursday. One stock in my portfolio I was actively wanted to buy more of (UpStart) was actually up 26%!

So whereas the conventional wisdom was that war would cause market players to sell stocks and hold cash or gold, this time around, it was more like they had already done this, and was now taking the opportunity of bargain prices to buy into the market.

I think this phenomenon was aided by early warnings by the US and Western governments of an imminent invasion, so investors had time to sell ahead before the invasion actually started.

Looking ahead for this week, the ebbs and flows of war will continue to keep stock markets very volatile. I am personally curious what would the impact of excluding a major economy like Russia from the SWIFT international remittance system on the stock market.

My thoughts are with all Ukrainians in this dark time, and may peace return to Ukraine soonest.

#stopthewar #peaceforukraine #prayforukraine

Malek Ali?- Founder,?BFM 89.9 - The Business Station. CFP professional.

Disclaimer:

This column is to help people who fear investing to experience the investment rationale of a long term investor in global stock markets. It is for informational purposes only and not intended as advice or recommendation to buy any stocks. Please consult a licensed professional adviser before making any investment decisions.