The Russian-Ukrainian conflict shakes the stock market. Here’s what investors should do now
SStocks have taken a hit this week as investors react to the Russian-Ukrainian military conflict. But experts say you shouldn’t upset your investment strategy just because stock prices move.
After a volatile trading day on Tuesday, the S&P 500 marked its first correction — a price drop of at least 10% from its most recent high — since the start of the pandemic. Shares continued to fall on Wednesday after President Joe Biden announced sanctions against Russia. The S&P 500 was down about 0.5% on Wednesday morning. The Dow Jones fell 0.3% and the Nasdaq Composite about 0.8%.
The latest price swings come in an already tumultuous time for the stock market. Inflation is at its highest level in 40 years and the Federal Reserve should raise its interest rates as early as March. Investors may be worried about their investment portfolios, but experts advise to stay calm.
“It’s just a reminder that volatility is an essential part of investing,” says Sam Stovall, chief investment strategist at investment research firm CFRA Research. “During times of high volatility and stress, don’t let your emotions become your portfolio’s worst enemy.”
How Russian-Ukrainian tensions could affect stocks
Although geopolitical events such as rising tensions between Russia and Ukraine have a huge impact on financial markets before the event, they usually don’t have a long-term effect, says Jim Paulsen, Chief Investment Officer at The Leuthold Group.
“The biggest problem is uncertainty until we know what’s going to happen,” Paulsen says. “It was particularly bad in this scenario.”
It’s no secret that uncertainty in the market leads to volatility as investors try to figure out what’s next. And that volatility leads to fear-based portfolio actions, like the sell-off we saw in March 2020 as concerns about COVID-19 hit the United States.
Stovall also says that we have seen multiple military and terrorist actions since World War II, and although the market drops about 1% on the day of the event and then drops about 5% afterwards, the market tends to recoup its losses in less than a month. Indeed, bear markets and recessions are usually triggered by financial crises, and while the rise in oil prices resulting from these events may dampen economic growth, it is unlikely to lead to a recession, adds- he.
Paulsen is more concerned about inflation and what action the Fed might take next. Higher interest rates make it harder for businesses and consumers to borrow money, which can help rein in high prices for goods like food and cars, but also for stocks and assets speculative like cryptocurrency.
This could be a buying opportunity
Market volatility is often seen as a reason to panic, but it can also be an opportunity for investors to buy stocks.
“Use this as a buying opportunity for stocks you were upset about and missed several months ago,” Stovall says. Some sectors, including technology, communications and health care, could make attractive long-term investments and have recently seen declines, he adds.
But remember, that doesn’t mean it’s a good idea to try to time the market’s ups and downs, which can be a dangerous investment strategy.
Investment advice: the best action is no action
If you have a solid investment plan in place, your best shot is likely to stay tight.
“It’s not something that would make me think people should change their investment allocations,” says David Sekera, chief US market strategist at Morningstar.
It is, however, a good opportunity to review your investment portfolio and the risk tolerance you can manage when we have these market disturbances, he adds. If the current market swings are causing you to lose sleep – perhaps because you have short-term cash needs – then you absolutely need to make sure you’re well positioned to meet those needs.
But overall, it’s not best to try to time the market, as it’s notoriously difficult to predict how geopolitical events will play out, Sekera says.
“Don’t react to headlines.”
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