To my clients:

It was a mostly up week for North American stock markets with the Canadian TSX finishing up 0.5%; the U.S. Dow Jones Index finishing down a scant 0.06% (not the extra zero); and the U.S. S&P 500 finishing up 0.8%.

Wait… what? Markets finished predominantly up for the week? The Dow Index had its best day of the year? Didn’t Russia invade the Ukraine? Weren’t markets down, just yesterday morning, on news of the invasion by about 3% for the day and 5% on the week? The answer to all of these questions is “yes”. But as I’ve written in the past few weeks, “geopolitical events” (read “war”) tend to have only fleeting impact upon the markets. Now, so as not to be disingenuous, one must acknowledge that the markets were down quite substantially in the first seven weeks of 2022 leading up to this week’s events. How much of these earlier declines were tied to the pending (at the time) Ukrainian invasion, and how much was attributable to inflation and interest rate concerns? While it’s impossible to know the answer to this question, and certainly some of the losses owed to the feared conflict, I’d posit that the bigger concern for the markets is, has been, and will continue to be interest rate policy from the U.S. Federal Reserve. Such actions impact economies. But war? Particularly regional war? Not so much.

The preceding being said, in discussing the Ukrainian situation with some clients in annual reviews the past two days, I elaborated upon the recent RBC research I shared in my weekly update of February 11th. In that prior piece, I noted that from the day hostilities began in all manner of conflicts going back as far as the bombing of Pearl Harbor in 1941, it took markets, on average, only 47 days to move on to new highs. The elaboration I provided to clients the past two days was that in a different study conducted by RBC, looking solely at a more exhaustive list of purely regional conflicts, it was found that even when factoring in market declines leading up to the outbreak of hostilities, markets still recovered all losses and moved on to new highs within 30 days of the bottom in stock prices. To put a finer point on it, these two studies differ in that a) one factored in losses leading up to the actual outbreak of hostilities while the other looked at losses only from the day hostilities began; and b) one measured the time to recover losses from the day markets bottomed in relation to the conflict [which may have coincided with the day hostilities began (as it appears may be the case yesterday) or may have been come some days thereafter), while the other looked at the time to recover losses from the day the actual conflict began. Regardless of these nuanced distinctions, the message remains the clear: Geopolitical conflicts impose no lasting consequence on the markets. They are best to ignore.

Next week, the typical range of beginning-of-the-month important economic data is released. I hope to return the focus of these weekly updates back to those topics as these are much more material considerations for the long-term outlook for investment portfolios.

That’s it for this week. All the best,

Nick

Nick Scholte, CIM, FCSI

Senior Portfolio Manager

Scholte Wealth Management
RBC Dominion Securities Inc. │ Tel: 604.257.7569 │ Fax: 604.235.9950
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