Russian Invasion Triggers ‘Scary’ Stock Market Correction—Here’s How Major Geopolitical Shocks Have Rattled Markets Before

Topline

As the growing conflict between Russia and Ukraine hoists the S&P 500 into a correction and the tech-heavy Nasdaq index into bear-market territory, analysts are warning clients a brutal stock market selloff could intensify if the conflict escalates, but many are convinced the market pressure will be short-lived, at least if history is any indication.

Russian President Vladimir Putin on Thursday announced a military operation in Ukraine and warned … [+] other countries that any attempt to interfere with the Russian action would lead to “consequences you have never seen.”

Vadim Ghirda/ASSOCIATED PRESS

Key Facts

Russia’s overnight proclamation of military action against Ukraine has “intensified the pressure” on stocks and “significantly exacerbated” the cautious market environment that’s rattled stocks this year, Wedbush analyst Dan Ives said Thursday, as the Nasdaq briefly plunged 20% below its record high, set in November.

The “knee-jerk reaction is always very scary,” but geopolitical shocks to the market are “not a time to panic,” Ives said, adding that similar selloffs since 2000 have traditionally presented a good buying opportunity for large, profitable tech stocks like Microsoft, Apple and Adobe—a sentiment echoed by Bank of America analysts earlier this week.

Others agree: Though a major conflict between Russia and Ukraine could be “devastating” overall, stocks will likely be able to withstand the geopolitical struggle, says LPL Financial chief market strategist Ryan Detrick, noting that stocks typically recovered within a few weeks after geopolitical shocks that rattle markets.

After the Sept. 11 terrorist attacks in 2001, the S&P 500, which fell as much as 2% Thursday before paring losses to 1%, tumbled nearly 12% over a period of 11 days, but it recouped those losses after a month—even though the resulting crisis plunged the nation into war.

Similar shocks also resulted in short-lived selloffs: The S&P tumbled nearly 7% in one day after the Cuban Missile Crisis in 1962, but it recouped losses in four days, and though it fell 4% after military rebels attacked one of oil giant Saudi Aramco’s key refineries in 2019, the index bounced back after 41 days.

In the greatest geopolitical shock to U.S. markets, the S&P plunged as much as 19.8% in the six months after Japan attacked Pearl Harbor in December 1941, thrusting the nation into World War II; the index recovered within 307 days, but the war dragged on for four years.

Crucial Quote

“Geopolitics have a history of rattling markets, and stocks are likely to be on edge for the next several weeks,” Lindsey Bell, chief markets strategist at Ally Invest, said in emailed comments Thursday. “The good news is that the impact tends to be short-lived, only lasting anywhere from one to three months. Historically, 12 months after such an event, the market edges higher.”

Key Background

Russian President Vladimir Putin ordered a “special military operation” in Ukraine early Thursday in a chilling announcement that was immediately followed by reports of explosions across Ukraine. At least 40 people have been killed and dozens more wounded, according to Ukrainian officials. Stock market futures plunged immediately on the news, with all three major indexes opening more than 2% lower. With the Federal Reserve dialing back the pandemic-era stimulus measures that pushed stocks to all-time highs during the pandemic, the market’s sensitivity to geopolitical shock has grown, analyst Adam Crisaffuli of Vital Knowledge Media wrote in a Thursday note. “The big threat to stocks right now is the tape’s compromised immune system,” he said.

Contra

“History offers clues but certainly not guarantees as to what is likely to occur,” says CFRA Research’s Sam Stovall, pointing out the market has edged out of corrections within 60 days about 83% of the time. “Should the market show signs of recovery in the coming days and weeks, the correction may have run its course—if not, the worst has yet to come . . . We have no way of knowing whether this would result in a new bear market.”