24 Feb , 2023 By : Monika Singh
Russia’s invasion of Ukraine has completed the one-year mark. The Russian forces invaded Ukraine after Russian President Vladimir Putin authorized a ‘special military operation’ against the country on February 24, 2022. When one of the major world powers launches an offensive on a recognised country, the effect on the financial markets is obvious. However, over the last 12 months, the impact on the US stock market on account of the invasion was largely muted and volatility in prices was witnessed only on a few occasions.
On February 23, 2022, the S&P 500 index closed at 4225.5; on February 24, the index closed at 4288.7; on February 25, 2022, the index closed at 4384.65. The index did not see an immediate negative impact as it slowly became clear that the US will impose additional sanctions against Russia. Markets realised that there might not be a long-term impact from the invasion. Today, one -year after the Ukraine-Russian war began, the S&P 500 is hovering around 4000 levels, down by about 7%.
The reasons that led to the fall of the S&P 500 over the last one-year is more to do with inflation and interest rates. Nearly 13?ll in Nasdaq 100, the tech-heavy index is largely on account of the rising interest rate scenario.
Still, one aspect of the Russia-Ukraine conflict stands out for the markets. While inflation had undoubtedly begun to knock on the door, the invasion unsettled the global supply chain and may have accelerated the impact of inflation on the economy. The rest is history, as it prompted the US Federal Reserve to raise interest rates, causing equity market volatility. As the US CPI index soared to 9.1%, multi-decade high inflation, the US Fed began its unprecedented tightening measures to contain inflation.
For US corporations, the Russia-Ukraine crisis posed a moderate earnings risk. Reportedly, US companies have low direct exposure to Russia (around 0.6% for the Russell 1000 index) and Ukraine (0.1%). The energy crisis in Europe and other parts was given, however, the impact looked to be less than expected earlier.
In February 2023, inflation is at 6.4% (January CPI data) and the Fed has hiked rates by 450 bps but the inflation target of 2% is still elusive.
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