As we are sure you are already aware, Russia began their invasion of Ukraine last
night with a comprehensive military operation. First and foremost, this is a
humanitarian issue, with millions of civilians in harms way and the horrifying price of
war that is paid in human lives and suffering. However, we would be remiss in our role
as your advisor not to discuss the implications for your invesments.
This is clearly an uncertain time and uncertainty can very quickly turn to fear.
Considering human psychology, the point of maximum tension is usually right before
something bad happens, it’s the anticipation that elicits the strongest emotion. These
feelings work the same way in the stock market, where fear of a market downturn, for
any reason, impacts prices well before an event occurs. After an event, market
participants can start weighing different scenarios and reflecting those in market
prices.
Turning to how markets react to war, unfortunately, there are multiple examples
throughout history. Evidence shows that markets can recover from these events
sooner than we would expect. For example, the first group of charts below show that
the market bottom can occur around the time of invasion. Moreover, the second chart
shows the performance of the Dow Jones Industrial Average (DJIA) at 1-month, 3-
months, 6-months, and 12-months after major geopolitical crises since 1900. The key
takeaway is that on average, six months after these crises, the DJIA was higher than
its pre-crisis level.
To be clear, we are not recommending that anyone attempt to make changes to their
plan based on the above information. We firmly believe that investors who endure
market declines and stay invested will see positive growth in the long term. We firmly
believe that attempting to time the market is impossible, one that cannot be executed
with any consistency. And finally, we firmly believe that staying committed to your plan
is the best path to long-term success.