There is considerable angst on Wall Street as investors weigh the escalation in Russia’s standoff with the West. But when considering potential damage strictly to U.S. financial markets, impact from a potential conflict will likely be short-lived, according to Tom Lee, co-founder of Fundstrat Global Advisors.
The S&P 500 Index was on track for a third consecutive session of losses after the European Union proposed an initial package of sanctions targeting Moscow in response to President Vladimir Putin’s decision to recognize two separatist republics in eastern Ukraine. Geopolitical risks, however, tend to have short-term shocks to markets, according to Lee. Markets tend to sell off on the risk of a crisis unfolding and later stabilize, he explained.
The direct impact on the U.S. stock market is likely to be felt more by P/E contraction due to investor fear, not through a decline in earnings-per-share since few U.S. companies have significant exposure to Russia, Lee said. That means sanctions will likely have less of an impact to U.S. companies and their stocks prices, Lee said.
Trading Impact
When Russia annexed Crimea from Ukraine in 2014, European markets slumped and the Russian stock market declined by double digits. The S&P 500 sold off about 6% in the first few weeks of 2014, but then bottomed a few weeks before Russia officially occupied the region, according to Keith Lerner, co-chief investment officer at Truist Advisory Services.
From there, the broader U.S. market’s underlying uptrend remained in place, Lerner said in a note. Though he expects that markets will likely remain choppy over the coming weeks as investors continue to mull the Federal Reserve’s interest-rate path and how it will impact the economic growth and corporate profits.
This article was provided by Bloomberg News.