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When the worst that can happen has already happened – Russia began an invasion of Ukraine. The Russian military operation by land, air, and sea was launched after a pre-dawn television address in which President Vladimir Putin demanded that the Ukrainian army lay down its arms.
Earlier last week, Russian President Vladimir Putin declared that Moscow had recognized the self-proclaimed DNR and LNR within the borders of the Donetsk and Luhansk regions. Earlier, the Federation Council had approved the use of Russian armed forces abroad. In the West, Moscow’s steps were perceived as a serious violation of the Minsk agreements and Ukraine’s territorial integrity. Germany has already put a stop to the certification of the Nord Stream-2 gas pipeline.
Shortly thereafter, Russian President Vladimir Putin announced a special military operation in Donbas. The aim of the operation was described as the protection of people who “are subjected to harassment and genocide by the Kyiv regime.” He said that the occupation of Ukraine did not enter into Russia’s plans, but that Moscow would try to demilitarize and denazify the country, as well as bring to justice people who had committed “numerous bloody crimes against civilians,” including Russians. Putin called on Ukrainian soldiers not to carry out the criminal orders, to lay down their arms immediately and return home.
U.S. Permanent Representative to the UN Linda Thomas-Greenfield said from the rostrum of the UN General Assembly that Russia was creating a “false reality” that was already having serious consequences for the people of Ukraine and the world. He warned that if Russia maintains the course it has chosen, it will provoke, among other things, a new migration crisis, one of the largest in the world today: five million people will be displaced and refugees as a result of Russia’s warlike choice.
In this context, it is not surprising that the markets suffered a spike in volatility. What will happen next? Back in 2005, Standard & Poor’s Ratings Services published a report entitled Terror, Markets and the Economy, which analyzed in particular the impact of wars and other catastrophes on stock market indices. He insisted that the press greatly exaggerates this influence and, in fact, stock market indices are increasingly resistant to global catastrophes.
An average of eight events affecting the world (the terrorist attacks in New York, London and Madrid, the invasion of Kuwait by Iraq, the Reagan assassination attempt, the Kennedy assassination, the OPEC oil embargo and the Cuban crisis) did not particularly worry the stock market: the S&P 500 was down 2.2% on the day of the event and recovered in 13 days.
According to the authors, the decisions of investors in the world’s stock markets were driven by panic rather than rational reasoning. Eventually, however, stock indices returned to their previous highs. Will something similar be repeated now? In the case of Russia we would not be so sure, but in the case of Europe and the United States probably yes. On the other hand, it should not be forgotten that the Fed’s tightening of monetary policy is coming…..
