February 25, 2022 | Vanguard Perspective

Ukraine and the changing market environment

With geopolitical tensions such as the conflict between Russia and Ukraine, investors often ask whether a link exists between current events and financial market performance. However, when we examined major geopolitical events over the past 60 years, we found that while equity markets often reacted negatively to the initial news, geopolitical sell-offs were typically short-lived and returns over the following 6- and 12-month periods were largely in line with long-term average returns. On average, stocks returned 5% in the 6 months following the events and 9% in the 12 months after the events as shown below.

Geopolitical sell-offs are typically short-lived

Initially, markets tend to react negatively to geopolitical crises, but these reactions tend to be short-lived. This chart looks at the market returns following a sell-off caused in part by a geopolitical event. On average, stocks returned 5% in the six months following the event and 9% in the 12 months after the event. The illustration depicts eight such events: the 1962 Cuban Missile Crisis, when stocks returned –5% during the initial sell-off, 21% over six months, and 26% over 12 months following the event; the 1974 impeachment proceedings of President Richard Nixon, –4% during the initial sell-off, –11% over six months, and –16% over 12 months; the 1979 Iranian hostage crisis, –3% during the initial sell-off, 3% over six months, and 26% over 12 months; the 1979 Soviet invasion of Afghanistan, –5% during the initial sell-off, 6% over six months, and 26% over 12 months; the 2003 Iraq War, –3% during the initial sell-off, 19% over six months, and 27% over 12 months; the 2011 Arab Spring, –3% during the initial sell-off, 3% over six months, and 3% over 12 months; the 2014 Ukraine conflict, –1% during the initial sell-off, 8% over six months, and 12% over 12 months; and the 2016 Brexit vote, –5% during the initial sell-off, 7% over six months, and 18% over 12 months.

Notes: Returns are based on the Dow Jones Industrial Average through 1963 and the Standard & Poor's 500 Index thereafter. All returns are price returns. Not shown in the above charts, but included in the averages, are returns after the following events: the Suez Crisis (1956), construction of the Berlin Wall (1961), assassination of President Kennedy (1963), authorization of military operations in Vietnam (1964), Israeli-Arab Six-Day War (1967), Israeli-Arab War/oil embargo (1973), Shah of Iran’s exile (1979), U.S. invasion of Grenada (1983), U.S. bombing of Libya (1986), First Gulf War (1991), President Clinton impeachment proceedings (1998), Kosovo bombings (1999), September 11 attacks (2001), multi-force intervention in Libya (2011), U.S. anti-ISIS intervention in Syria (2014), and President Trump impeachment proceedings (2019 and 2021).

Sources: Vanguard calculations as of December 31, 2021, using data from Refinitiv.

Past performance is no guarantee of future returns. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.


Even with that backdrop in mind, it's clear that a new dimension of risk has entered the financial markets with Russia's attack on Ukraine. It's not something the markets needed when they were already dealing with brisk inflation and preparing for an expected cycle of interest rate hikes from most of the world's central banks.

We know this, however, about equity markets in the context of geopolitical risks: They've been resilient, much as markets have always been resilient in the face of various risks. We expect the markets to work themselves out, reaching new heights over time and at varying paces. These rises will sometimes be punctuated by sharp declines, and that’s when advisors like you can help your clients stay focused on their long-term plans.


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