Weekly Brief: The turmoils of the Russian and Ukraine conflict on the market

Recent developments of the conflict

The tensions between Russia and Ukraine have continued to escalate as President Biden announced his certainty of the imminent Russian invasion of Ukraine. This statement was made based on the shift in the Russian troops placed around the borders of Ukraine as they have now shifted into attack positions. The US government also unveiled that the approximate number of personnel the Russians have around the Ukrainian borders has increased from less than 100,000 to over 169,000 since the end of January. Furthermore, US and Europe place the blame for the recent cyberattacks on the Ukrainian Defense Ministry and banks on Russia. Despite Putin’s defense against these allegations, the officials in the US and Europe have declared their certainty that the Russian troops will attack in the very near future.

The economic toll on the market

The market this week has experienced another severe downward trend as the tensions between Russia and Ukraine continues to worsen.

The Dow Jones Industrial Average Index saw the worst hit as it dropped to the worst it has been for the year. Other major indexes also fell with S&P 500 down 1.6% for the week. Since the investors have been following the movements of Ukraine and Russian situation, it is not a surprise that the market this week experienced volatility. Moreover, economists predict that even without the possible military outbreak, the stock market will still be experiencing volatility due to the planned rise of interest rates by the federal government in March. As shown by the downward sloping graph, a tightening monetary policy did not work as effectively as the government predicted in the past few cycles.

In the bond market, investors have looked towards the 10-year treasury yield, which currently sits at 1.93%, as relatively more stable moving into the unpredictable developments of the Russian and Ukrainian conflict.

The sector most affected by the threats of the Russian invasion is the oil sector. Since Russia is the third-largest supplier of fossil fuel in the world, if Russia were to invade Ukraine, the US will experience a significant drop in the US inventories due to its position against Russia. Hence, this would cause a dramatic increase in oil prices, hence, as predicted, a barrel of oil could top $100 a barrel due to decreases in Russian fossil fuel exports.

What it means for the future of the stock market if Russia invades

If the US officials are right with their predictions, the Russians will invade Ukraine in the next few days. If this occurs, as mentioned previously, the West will face the prospect of energy shortages and will have to figure out ways to find alternative energy sources beyond Russia.

Moreover, energy analysts estimate that the prices of oil barrels will continue to increase, possibly surpassing $125 per barrel.

Consequently, investments are predicted to be made into stocks associated with industries surrounding oil production. As inflation continues to increase, analysts encourage investments into the energy sector, or more specifically, renewable energy during this highly unstable period.

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References

Pattidomm. (2022, February 19). Russia's Ukraine threat and worries on fed rate hikes could make for a turbulent week in markets. CNBC. https://www.cnbc.com/2022/02/18/russias-ukraine-threat-worries-on-fed-rate-hikes-could-make-for-a-turbulent-week-in-markets.html

Vladimir Isachenkov, Y. K. (2022, February 19). Biden is 'convinced' Putin has decided to invade Ukraine. AP NEWS. https://apnews.com/article/russia-ukraine-joe-biden-europe-russia-moscow-c2e55b8b2b061b58e2b140d2a6dc1d57?utm_campaign=mb&utm_medium=newsletter&utm_source=morning_brew

NatashaTurak. (2022, February 17). Oil could vault as high as $150 a barrel, veteran analyst warns, as undersupply meets surging demand. CNBC. https://www.cnbc.com/2022/02/16/oil-could-vault-as-high-as-150-a-barrel-veteran-analyst-warns.html?recirc=taboolainternal