Global markets typically rebound from war and disaster, and they are likely to do so this time, too. But Russia’s nuclear arsenal raises the risks beyond calculation.
Global markets usually weaken as wars approach, strengthen long before wars end and treat human calamity with breathtaking indifference. That’s been a common historical pattern, anyway. And, with some important caveats, it seems to be playing out with Russia’s latest aggression toward Ukraine. President Vladimir V. Putin of Russia has already rattled stock, bond and commodity markets around the world. On Tuesday, U.S. stocks stumbled, with the S&P 500 falling 1 percent, into what Wall Street calls a correction — a decline of least 10 percent from the most recent high. The escalating conflict has shifted the value of mutual funds and exchange-traded funds in millions of retirement accounts, even for people who have not thought deeply about Eastern Europe and who have never invested directly in oil, gas or other commodities. Mr. Putin’s announcement on Sunday that he was recognizing the sovereignty of two Russian-dominated breakaway Ukrainian regions and ordering Russian troops represented a serious increase in the risks of a much wider war. Where the conflict may be heading exactly isn’t clear, but the short-term market implications are. “The near-term consequences for markets are relatively simple,” said Claus Vistesen, chief eurozone economist for the research firm Pantheon Macroeconomics. “Energy prices will keep rising, and equities will keep falling.” Not all stocks have been falling, of course. Rising oil and gas prices have bolstered the S&P 500’s energy sector, the best performer this year, with a return of 21.8 percent through Monday. This came even as the overall index, which often serves as a proxy for the entire stock market, has fallen 8.8 percent. Energy companies like Halliburton, Occidental Petroleum and Schlumberger are leading the S&P 500. And American investors have nearly $140 billion stashed in commodity E.T.F.s, mainly those focused on energy, like the $35 billion Energy Select SPDR Fund, which has returned 23.4 percent through Monday. But the overall stock market has been afflicted by multiple troubles: fears of rising interest rates, sizzling inflation and continuing supply-chain bottlenecks. Russian threats to Ukraine are likely to whipsaw the market further. Even so, long-term investors with well-diversified portfolios of stocks and high-quality bonds — whether held directly or through low-cost mutual funds and exchange-traded funds — will probably be able to ride out this crisis, as they have so many others. While stocks often fall amid global turmoil, U.S. Treasury bonds tend to rally as investors seek havens and drive up their prices. Bond prices and yields move in opposite directions, and because interest rates are rising, Treasuries have declined in value this year. But in a major stock downturn, they usually provide a short-term buffer for portfolios that contain them.
