Global Markets React to Situation in Ukraine
Shockwaves were sent through the global markets on Friday as the White House reported that it believes that Russian troops are about to attack Ukraine. The US markets dove in the second half of the session, as all three major indices closed the week lower. So why would an impending altercation between two European nations affect the US markets? It has to do more with existing investor anxiety. It is no secret that the US markets have been battered so far in 2022, particularly tech and other growth sectors.
With the Federal Reserve likely raising interest rates this year to try and reign in inflation levels, investors have already been quick to hit the sell button for many of our favorite stocks. But with an imminent Russian invasion, we could see even further weakness in the markets next week. On one hand, market volatility could continue in the short-term, and on the other hand, it could provide a tremendous opportunity for long-term investors.
It’s All About Commodities
The weakness in the global markets wouldn’t necessarily be from any one company being affected. Rather, the US and the UK have promised swift economic sanctions against Russia if an attack is indeed carried out. Russia is a commodities powerhouse. It is the world’s largest exporter of wheat, as well as a major player in the oil and fossil fuels market, exporting nearly 5 million barrels of oil per day. Any sanctions against Russia would likely send European gas prices through the roof. Food prices would likely rise too, as these commodities markets tend to have a chain reaction throughout the global economy.
It’s not just wheat and oil either. Russia is a massive producer of nickel, potash, fertilizers, and natural gas. If Russia stops exporting any of these products we could see prices rise worldwide. But there are many analysts who believe an attack is not going to happen. Until Russia makes the decision, global markets will likely be in limbo.
More Short-term Volatility
It’s difficult to guess which stocks could benefit from this situation. Obviously, oil stocks were some of the few that were on the rise on Friday, as the rest of the markets dropped lower. Defense stocks could be an interesting way to play this, as could moving into other hedges like gold or even Bitcoin, while the market volatility plays out.
In the meantime, I expect more volatility for the NASDAQ (IXC) index, as well as the S&P 500 (SPX) which is heavily dominated by mega-cap tech stocks. There is a chance we open Monday even lower as investor uncertainty hits the Asian and European markets before the US opens for trading. Commodities are another way to hedge against this turmoil as Brent Crude Oil futures could be on the rise in the short-term. If Russia announces it will not attack Ukraine, we could see a nice rebound across the global markets.
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