The most watched US stock index S&P 500, which measures the development of stock prices of the largest US companies, depreciated 1.9 percent at the end of the trading week. The Nasdaq 100 technology headline lost almost three percent of its value. A possible Russian invasion could send the shares even lower.
“Investors have relied on diplomacy and have largely ignored the threat,” said John Lynch, chief investment officer at Comerica Wealth Management, to the Wall Street Journal.
Geopolitical threats increase risk aversion among investors. This has a negative effect on the prices of shares and other financial assets. On the other hand, the winner is usually US government bonds, which are considered by investors to be a safe haven.
Gold or armory shares can also benefit from the situation, at least in the short term. Shares of Lockheed Martin rose nearly three percent on Friday, while shares of Northrop Grumman even improved by 4.5 percent.
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Like two years ago they counted Analysts at the American financial company LPL Research, during 20 major geopolitical events – from the Japanese attack on Pearl Harbor in December 1941 to the drone attack on Saudi Arabian oil fields in 2019 – the S&P 500 depreciated on average five percent of its value in the following days and weeks.
In the post-Pearl Harbor period, the S&P 500 lost nearly 20 percent. However, the turnaround in the American stock market came in the spring of 1942 after the Americans succeeded in the naval battle in the Coral Sea. Another US stock market indicator – the Dow Jones Average – strengthened by 50 percent between the beginning of World War II and its end in 1945. He recorded profits in the tens of percent, for example, during the conflicts in Korea and Vietnam.
In other, less significant geopolitical “events,” stock index values have recovered even faster than after Pearl Harbor. “Stock prices fluctuate, but the effects of geopolitical events tend to be short-lived,” said LPL Financial strategist Ryan Detrick.
On the other hand, every geopolitical situation is different. The wider conflict in Ukraine, especially if NATO countries are involved in some way, can have far-reaching consequences for financial markets. Next days will tell …
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