Trending
American markets today, Friday, viewed several hours before the 9:30 a.m. Eastern time opening appear poised for a positive start with the S&P 500, Dow and Nasdaq all in positive territory. However, the S&P 500 is wavering and could turn before or after the market opening.
Canadian markets look set for a positive start with the TSX 60 and TSX Composite in the green, though only barely.
European markets are open at time of writing with a mixed outlook. The FTSE 100 and CAC 40 are positive while the Dax is in the red but edging up.
Amongst precious metals, the safe havens of gold and silver are down.
Amongst currencies, the Canadian dollar and British pound sterling are up against the American greenback while the Euro is unchanged. All three currencies are varying as I write this column.
If any further proof of continued market volatility were necessary, we got it again yesterday. American stocks slumped as investors went to safe havens in bonds and gold. That followed United States President Joe Biden’s warning that a Russian invasion of Ukraine appeared imminent. Financial and tech stocks dropped, although the consumer sector got some good news with results from Walmart in the United States and Canadian Tire in Canada. Both companies beat their estimates with a little help from Christmas shoppers.
Still, the Russian expulsion of the U.S. Deputy Ambassador, the exchange of fire between Russia-backed rebels and Ukrainian forces combined with Biden’s remarks raised war fears higher than ever previously. Since market closing, those skirmishes have dramatically increased in intensity but do not involve the Russian soldiers massed on the border.
The toll yesterday was certainly alarming. The Dow fell 1.7% to close at 34,312.03, while the S&P 500 fell 2.12% to close at 4407.8 and the Nasdaq dropped 2.88% to close at 13,716.72.
War tensions have combined with concerns about inflation, rate hikes and supply chain shortages. “Every other headline that comes out on Russia/Ukraine seems to tell a different story. Right now, the narrative seems to be more aligned with the fact that this is getting worse, not better,” suggested Art Hogan, chief market strategist at National Securities in a Reuters report.
Yet just days earlier, markets had rallied with reports that Russia was pulling troops back from the border with Ukraine. Stocks had sold off previously amid fears that an invasion into Ukraine was imminent, but sentiment had shifted after an apparent move by Russia to pull back some of its forces. The Dow then rose 1.2% to close at 34,988.84. The S&P 500 picked up 1.6% to close at 4,471 and the Nasdaq swelled by 2.5% to close at 14,139.76
While it’s easier said than done, Vladimir Putin should not loom so large in investment decisions. However, we have been in a situation in which the market shifts with the narrative to which Hogan refers.
Journalists get nervous when they make forward-looking predictions in print where they will remain forever but speaking as someone who has written about Russia and Ukraine, I will go out on a proverbial limb and say that Putin may not invade Ukraine in a full-blast shooting war.
(The potential for a heightened cyberwar is another matter.)
Understanding Putin begins with understanding that he began his career as a recruiter of spies for the Komitet Gosudarstvennoy Bezopasnosti – better known as the KGB. He has enough of a world view to realize that a full shooting war would harm the economies of both countries. The Russian economy is already suffering under sanctions and the threat of more sanctions is not appetizing. Ukraine’s economy has become unsettled already and the population there is well aware of its weakness.
Moreover, outside of the Russian-backed forces, Ukrainians will not greet Russian soldiers with flowers and cheers and it is likely that Putin realizes this. Russia’s move actually increased the potential resistance: it re-energized the North Atlantic Treaty Alliance – more commonly referred to as NATO and given it new life and it has made its renewed position quite clear. In the end, a full shooting war would – to use the words of former British Prime Minister Margaret Thatcher in describing the implications of the Falklands War -- have huge costs ‘in blood and treasure.’ Putin also likely knows how few friends he has who will follow him into battle. Stepped up American arms sales to Europe send a strong message although the most powerful deterrent is the American threat to cut off Russian state banks from the dollar and to sanction the funds of Russian billionaires. It is reasonable to believe that they have communicated their concerns emphatically to Putin. And certainly, he cannot afford to disturb Russia’s revenues from selling oil and gas.
He can go home with some trophies even if he does not invade Ukraine. He has re-asserted his place on the world stage and can sit back while `world leaders feverishly set up meetings and telephone calls. At the same time, he is re-asserting Russia’s power. He has probably never forgiven former President Barack Obama’s statement that Russia was a ‘regional power’ that did not pose a real threat. And he has distracted Russians from the hardship, repression and constraints at home. He managed all of this without sending a single soldier across the border. Meanwhile the Russian- backed forces within Ukraine will do some of the dirty work for him.
So yes, the situation is serious and when we make investment decisions based on volatility, let’s consider inflation, Biden’s legislation, interest rates, oil prices and the other factors we discuss here and elsewhere. However, this crisis will cool eventually so when it comes to decisions based on the possibility of war, let’s stay the course. Vladimir Putin shouldn’t affect investment decisions any more then he has already.
Related: Dealing With Kryptonite Isn’t Easy
Al Emid is a financial journalist, broadcaster and author with two books underway.
The Emid Report on Volatility 2022 – the next in the series -- is scheduled for release in Summer 2022 and his book on foreign investing is scheduled for release in January 2023