Do you have 190,000 Reasons to Worry?
Hello and welcome to a special edition of Haider’s Hits, a blog update with timely insights to help you Invest with Clarity and Live with Purpose.
190,000 – that’s the number of troops Vladimir Putin assembled at the border of Ukraine and Russia last month. This was the largest mobilization of troops since World War 2. Despite repeatedly denying he had any designs on his neighbor, Putin still launched an invasion.
It’s heartbreaking to watch what the families in Ukraine are having to endure right now and we’ll certainly keep them in our thoughts and prayers. Here at home, we worry also about the financial and economic impacts.
We’ve seen heightened volatility and this recent market drop has been the first official correction (defined as a decline of at least 10%) since the early days of the pandemic. However, not all of the sell-off can be blamed on the Russia-Ukraine crisis. As I mentioned in my previous update, investors are also wrestling with higher inflation and talk of higher interest rates from the Federal Reserve.
This all creates heightened uncertainty, which simply means more volatility as the potential negative economic outcomes increase in the short term. Over some time, the outlooks consolidate and the focus shifts back to more fundamental economic data. That has been the historical pattern. In other words, historically, selloffs tied to geopolitical uncertainty have been limited.
The attached research chart from LPL shows the market reaction to 22 geopolitical “market shock events” since WWII. Here’s what sticks out – the average drop was just 4.6% for the S&P 500 Index.
Let’s take a look at a couple.
During the Cuban missile crisis, when the world was literally on the brink of nuclear annihilation, the S&P 500 only lost 6.6% over a week.
The biggest decline shown in the survey occurred after the surprise attack on Pearl Harbor. The market shed nearly 20% over 5 months but still managed to erase all those losses within one year of the attack that drew the U.S. into World War II.
Now there are still a number of difficult questions to answer regarding how the war affects the U.S. and global economy, especially in light of a less accommodative Fed.
We should brace for more volatility, but using history as a guide, we know that for longer-term investors, the biggest influence over the S&P 500 are the economic fundamentals – that is the U.S. economy, the Federal Reserve, and corporate profits.
We can’t pinpoint a market bottom but we know this from the attached research – in the 32 times that the S&P 500 Index has shed at least 10% since 1980… one year after hitting the bottom, the index was up on average almost 25%.
Market performance aside, at the end of the day, a good financial plan will help you manage emotions through volatile markets like these. Our planning platform, Your Life Map™, incorporates the unexpected potholes, like market volatility, that you’ll hit along the way toward your goals.
The geopolitical news can be unsettling and sometimes give you 190,000 reasons to worry, but as a veteran trader once said, “The world only ends once. Don’t bet on the end of the world. The odds are way against you.”
As always, if you have any concerns on how the current world affairs are impacting your Financial Plan, please reach out to my team today.
Thanks for joining me today. Please remember to pass this along to your friends and family and I look forward to sharing more in the next edition of Haider’s Hits.
