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As the world watches the Russian invasion of Ukraine, investors have been hitting the panic button. Major global stock markets year-to-date are down in the range of 8-14%, while the TSX Composite Index is only down 1% given its large weight towards the resource (energy/metals) sectors.

Unfortunately, military conflicts have been a tragic part of human history for hundreds of years. In the 20th century and even the 21st century, these conflicts continue to occur every few years. In the short term, these events or even the threat of a conflict are bad for stock markets since the uncertainty causes investors to emotionally sell which leads to a market correction.

However, in the long-term, military conflicts have a positive effect on the market as follows:

  • provide a buying opportunity for patient investors as other investors panic based on either locking in profits or emotional selling

  • eliminate some of the excess speculation and froth in certain sectors of the market
    (i.e. technology stocks/cryptocurrencies)

  • provide a reset for the economy in terms of future interest rates and economic growth

History shows us that stock markets do recover from wars. Using the U.S. stock market index – the S&P 500 Index, the chart below shows the recovery time from the date of the event.

Market Recovery from Geopolitical Events                                                                     
Days Between Event and S&P 500 Recovery to Pre-Event Levels 

Source: GeoEconomics Center Calculations;, LPL Research, Bloomberg, CFRA • Incidents before 1957 rely on the S&P 90, the predecessor index to the S&P 500.
Market reaction to the 2014 Russian annexation of Crimea came after the event when major sanctions were imposed the following October

No one knows how long the Russia/Ukraine war will last however, it will likely be short-lived given the lack of NATO military forces involved.

We believe stock markets will recover based on the following:

  • the global economy remains strong with the International Monetary Fund estimating 2022 global GDP growth of 4.4%

  • interest rates may not go up as fast as investors expect given the negative sentiment regarding the war

  • corporate hiring remains strong

So what should investors do now?

  • If you're fully invested stay the course with your asset allocation

  • If you have cash on the sidelines start averaging into the market

The Bottom Line
As we discussed in our 2022 Outlook, we expected a choppy year for markets. The combination of geopolitical threats, rising interest rates, Omicron, and peaking earnings growth creates stock market uncertainty but provides an attractive buying opportunity for patient long-term investors.

Click here to view our 2022 Annual Outlook video and booklet:
Outlook 2022


Click here to email Anil Buy our MATCO Funds today

Anil Tahiliani, MBA, CFA
Senior Portfolio Manager, Canadian Equities
Local: +1-403-718-2130

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Founded in 2006 to manage and service seven family offices, today Matco offers the benefits of our extensive investment management experience to individual investors, foundations, endowments, condominium corporations, trusts, corporations and not-for-profit organizations.

Our mission is to simplify the investment world for our clients by understanding their needs and providing exceptional investment solutions that preserve and grow capital.

 Matco Financial is an independent, privately held discretionary investment counsellor and asset management firm that serves the needs of individual investors, institutions, advisors, trusts, corporations and not-for-profit organizations. Matco provides investment advisory services to investors on a discretionary basis through mutual funds and separately managed accounts. This communication is intended for information purposes only and does not constitute an offer or solicitation by anyone in any jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation. Matco Financial Inc. makes no representations as to the accuracy or any other aspect of information contained in other websites. All statements that look forward in time or include anything other than historical information are subject to risks and uncertainties and are not guarantees of future performance. Investors should not rely on forward-looking statements. Actual results, actions or events, could differ materially from those set forth in the forward-looking statements.

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