When the news broke that the U.S. told Americans to evacuate Ukraine, it was a clear indication of escalated tensions between the two countries.
U.S stock traders responded with selling, so we spoke with Carl Carlson, CEO and founder of Carlson Financial, on the impact of escalated military tensions and possible military conflict between Russia and Ukraine.
Carlson started by saying, “Remember that we always have wars and rumors of wars and have had conflicts with other countries that threatened a US-Russia conflict. The consequences for Russia, if they choose invasion, will be NATO-led sanctions from the West and Europe. This will have a negative impact on their economy in a number of ways, the biggest of which will be the likely elimination of EU [European Union] purchases of natural gas. This will cause a huge supply shortfall for the EU, and the U.S. would become the supplier to fill the void.”
When it comes to the US stock market, Carlson said it should already have a lot of this priced in by now, but if the invasion actually occurs, he would expect a single day drop of 1-3%.
“In past geopolitical conflicts, the market has fallen an average of 5%, taking 22 days to bottom out and 47 days to recover. Post-Pearl Harbor, the worst of which being Iraq’s invasion of Kuwait at 17% market drop, bottoming out in 71 days and taking 189 days to recover,” Carlson said.
A significant issue may be that it causes another dramatic bump in oil prices, pushing inflation even higher in the United States, he added.
Rising inflation could also likely cause the Fed to raise interest rates exacerbating the problem further.
“Uncertainty causes the market to be volatile and trade sideways. It looks like we may be in it for a while with Russia/Ukraine, inflation and interest rates, and then there is always that unknown thing lurking in the dark that also seems to pop up in the midst of everything else. So, just be expecting it, but know that the market will bounce back and usually quicker than most of us would expect,” Carlson said.