War and Markets

Just as COVID related mandates and restrictions started to abate in the US and around the world, Russia invaded Ukraine.

First, our prayers go out to all those impacted by war. Innocent people killed, maimed, or whose lives are destroyed in other ways as they find themselves in the wrong place at the wrong time. We pray for safety and peace for all innocent people around the world who are just trying to raise a family and live their lives in peace.

As for investors, what impact does war have on markets? Since the invasion on Thursday, February 24, here are some initial price movements through March 1, 2022. Prices are from WSJ Market Data on 02/23/2022 at 4pm and again on 03/01/2022 at 4pm.


Price or Yield

Price or Yield

Change to
Price or Yield

S&P 500








US 10 Yr. T Note



-26 bps

US 2 Yr. T Note



-27 bps

WTI Crude Futures




Brent Crude Futures




Based on prices in the chart above, oil prices are up double digits, stock prices are flat to down slightly, and bond yields are down about -0.25%. The stock market’s initial reaction to the invasion is a bit muddy because stocks have been experiencing selling pressure since January.

Taking a historical perspective of market reactions to major geopolitical events can be helpful. Including the 1973 Yom Kippur war and subsequent oil embargo, a recent JP Morgan article identified 13 significant geopolitical events that have impacted markets (more here).

The worst market impact and longest sell-off happened to be the Yom Kippur war mentioned above. According to JP Morgan research the sell-off lasted 27 days, the market declined -17.1%, and it took S&P 500 1,475 days to recover loses resulting from that conflict and the oil embargo.

Surprisingly, the attacks on 9/11, which shut-down air travel for days and shocked America, resulted in a relatively short six day sell-off, a -5.7% decline and a full recovery within 15 trading days.

What these examples illustrate is that markets decline and recover differently based upon the context in which the geopolitical event happened. The Yom Kippur war and oil embargo significantly impacted America due to our dependence on foreign oil at that time.

As a grade school lawn cutting entrepreneur at that time, I remember riding my bicycle into the village and having to wait in line to fill my gas container (two whole gallons) for my lawn tractor. There was even rationing based on license plate numbers, the odd/even system, was rolled out try to manage gasoline shortages.

Currently, the economy is relatively strong, inflation rates are at or near record highs, and overnight lending rates (Fed Funds rates) are at zero. To prevent runaway inflation, Jay Powell and the Federal Reserve Bank are about to embark upon a rate rising cycle. Recent articles predict that Powell and the Fed are expected to confirm their intentions to raise rates despite the Russia/Ukraine conflict.

Monetary activity conducted by the US Federal Reserve Bank is often more potent and concerning than war, at least for investors. Rising Fed Funds rates and a tightening money supply are typically negative for stocks and ultimately positive for bonds. Why?

Here a few examples of what happens as interest rates go higher. Mortgage rates go higher making buying a new home more expensive. The cost of capital for doing business increases making new project hurdles harder to meet. Buying a car is more expensive as auto loan rates go up.

On the margins, things get more expensive.  Less and less home buying, car buying, and business projects happen as rates go up. Demand for goods and service declines, which is another way of saying economic growth slows. If the Fed tightens too much, economic growth turns negative, and the economy goes into recession.

From an investment lens, eventually bond yields start to decline (prices go up) as the economy slows, especially if it tips into recession. Since company revenues slow or decline as the economy slows, stock values also decline, especially in a recession. Thus, the actions taken by the Fed are ultimately more consequential than a war on foreign lands.


This material is provided by Schmitt Wealth Advisers for informational purposes only. Schmitt Wealth Advisers does not provide tax or legal advice, and nothing herein should be construed as such. It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy, or investment product.  Opinions expressed by Schmitt Wealth Advisers are based on economic or market conditions at the time this material was written.  Economies and markets fluctuate.  Actual economic or market events may turn out differently than anticipated.  Facts presented have been obtained from publicly available sources (unless otherwise noted) and are believed to be reliable.  Schmitt Wealth Advisers, however, cannot guarantee the accuracy or completeness of such information.  Past performance may not be indicative of future results.

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