Wall Street woes build after Russia invades Ukraine

Susan Tompor
Detroit Free Press

Reverberations from Russia's attack on Ukraine — the first major land battle in Europe in decades — escalated an ongoing war of nerves on Wall Street. 

The Dow Jones Industrial Average substantially cut its earlier losses and gained 92.07 points — or up 0.28% — to close at 33,223.83 Thursday.

President Joe Biden unveiled new sanctions on Russia after the country's full-scale invasion of Ukraine, calling the time a "dangerous moment for all of Europe." 

Firefighters work on a fire on a building after bombings on the eastern Ukraine town of Chuguiv on February 24, 2022, as Russian armed forces are trying to invade Ukraine from several directions.

Stock prices plunged more than 800 points in trading early Thursday, oil and gold prices soared and Ukrainian-Americans feared for their families and friends abroad after the latest Russian aggression. 

For investors, the stock market has been a comfortable place to make money ever since the initial dramatic fallout two years ago at the start of the COVID-19 pandemic and the related economic shutdowns to address the spread of the virus. 

Maybe it's been too comfortable. 

We've spent much of 2022, though, dealing with more volatility — and now more threats to global growth. We're still not heading into a recession in the United States, according to economists, but surging oil prices will cut into growth. Inflation is heating up and interest rates will head higher. 

On Thursday, oil topped $100 a barrel for the first time in nearly eight years. 

The stock market has been jittery ever since hitting its all-time high early this year when the Dow Jones closed at 36,799.65 points on Jan. 4.

Through Wednesday, before  the larger invasion,  the Dow was down more than 9.9% or 3,667.89 points, year to date. 

The Wall St. street sign is framed by the American flags flying outside the New York Stock exchange

The Standard & Poor's 500 index reached its record high on Jan. 3 when it closed at 4,796.56 points. But the S&P 500 was down 571.06 points or 11.9% for the year through Wednesday. 

More:Ukrainian Americans in Michigan 'watch in horror' as Russia attacks

Overall, three issues have been pressuring stocks in early 2022, according to Sam Stovall, chief investment strategist for U.S. equities at CFRA Research in New York. 

The anxiety about Russia's military buildup before the attack created much uncertainty for stocks early on.

The spike in inflation triggered a likely shift in Fed policy and future action to raise short term interest rates as soon as the March 15-16 Federal Reserve meeting.

And then there is the concern that corporations are indicating a slowdown in earnings forecasts. 

Right now, investors can expect that the volatility generated by the Russia-Ukraine conflict will continue, but the invasion isn't likely to throw the world into recession, Stovall said.

Once investors are less fearful of a global recession, he said, the markets could rebound. 

Stock markets also tend to rise, he said, when the Fed begins to raise rates, giving the market some hope in the coming weeks. 

Here's a look at big questions investors are asking: 

What type of stocks or industries could see the most pain? 

Consumers tend to be less willing to make big-ticket purchases, such as buying a car or appliances, at a time of war or great global uncertainty. 

As a result, stocks that fall into the consumer cyclical category, such as auto stocks, could be vulnerable, said David Sowerby, managing director and portfolio manager for Cleveland-based Ancora Advisors.

Ford Motor Co. recovered from earlier losses in trading and was up 20 cents a share — or up 1.18% — to close at $17.15 a share Thursday.

General Motors picked up after earlier losses Thursday, too. GM closed at $46.35 a share — down 3 cents or down .06%.

Stellantis closed at $18.39 a share — down 78 cents a share or down .07% Thursday.

Any industry, Sowerby said, that is reliant on raw materials from Russia and Ukraine also would face added stress. Significant exports from Russia and Ukraine include natural gas, wheat, aluminum and nickel.

Kellogg closed at $63.79 a share — down $2.68 a share or 4.03% Thursday.

What industries could be less threatened by war? 

Think defense industry stocks, oil and consumer staples. But many stocks were hard hit Thursday — including stocks in those categories.

Exxon Mobile Corp. closed at $75.80 a share — down 97 cents or 1.26% — Thursday.

Will we still see higher interest rates ahead? 

Most likely, yes. 

Sowerby expects that the Fed is likely to boost short term rates by a quarter of a percentage point at the next two-day meeting March 15-16.

Rate hikes remain likely, he said, because inflation remains a large challenge for the U.S. economy. 

Sam G. Huszczo, a chartered financial analyst in Southfield, blames much of the market fallout lately on concerns about inflation, instead of political upheaval in Eastern Europe.

"More and more investors are coming to the conclusion the Fed needs to move faster on combating inflation, creating expectations of even more rate hikes for 2022," Huszczo said.

"Our question is how many rate hikes are currently baked into the markets," he said.

"We see four rate hikes as highly likely and even as many as seven rate hikes by the end of 2022," Huszczo said. 

Is virtual currency safer than stocks? 

Not really. 

Gold prices are up, but cryptocurrency prices plunged in light of the Russian invasion. 

"From what we’ve seen so far crypto is not the inflation hedge or political risk hedge enthusiasts have hoped it would be," Huszczo said. 

Instead, he said, the downward trend for virtual currency values in recent months have closely mirrored movements of the S&P 500. 

"This could be an ancillary effect of crypto becoming more mainstream and losing a little bit of what made it special to begin with," he said. 

"I am still curious how long Bitcoin enthusiasts could hold on if we had a more prolonged economic recession. If people are put in a position to have to sell assets to pay bills, which will they sell first: their S&P 500 Index or Bitcoin? We are not quite at that true test yet." 

What other situation in history might compare to Russia's attack on Ukraine relative to the impact on investors? 

Individuals who invest for the long term — say for a retirement in 20 years or more — should avoid a panic selloff after any shocking major news development. Investors who stay the course can ride out the downturns over time. 

In August 1990, for example, Iraq invaded Kuwait and U.S. stocks took a hit and ended up being weak for roughly three months. But then stocks moved higher, Sowerby said. 

The United States was in a more vulnerable position in 1990, though, because the country was already at the start of a short recession, which ran from July 1990 through March 1991. 

Today, the United States isn't at the start of a recession and most economists do not expect Russia's invasion of Ukraine to trigger a recession here. 

"Big threats whether from nature, economies or authoritarian regimes are frequent in stock market history," said Melissa Joy, president of Pearl Planning, a wealth adviser in Dexter. 

A concern now is how investors who just entered the stock market in the past few years will react. Will many give in to a panic? 

"The challenge today is that after COVID’s big market meltdown, things have been relatively steady for a couple years and steadiness can lead to complacency," Joy said.

"Every market crisis is different, but they all can give investors lessons on patience, resilience and discipline."

ContactSusan Tompor via stompor@freepress.com. Follow her on Twitter@tompor. To subscribe, please go to freep.com/specialoffer. Read more on business and sign up for our business newsletter.