Investors might be afraid of what rising interest rates will do to the stock market but they’re more afraid of Russia invading Ukraine. It’s a Black Swan event that could see the stock market crash 20%.
A Black Swan event is an unexpected, rare event that triggers a stock market crash. The last Black Swan event was COVID-19. No one could have predicted it and it had a catastrophic effect on the stock market and global economy. And it continues to. That volatility could be compounded if Russia invades Ukraine.
What Will Happen to Stocks if Russia Invades Ukraine?
We’re already seeing how it would impact the stock market. The S&P 500, Dow Jones Industrial Average, and TSX have all taken a hit since the Canadian, U.S., and United Kingdom governments urged their citizens to leave Ukraine on fears Russia could invade Ukraine “any day now.”
Stocks tumbled as investors turned to traditional safe haven investments including bonds and gold. Oil prices have surged over the last number of days, with the price of West Texas Intermediate crude oil reaching $95.00 per barrel. An actual war would likely send the price of oil above the $100 a barrel mark for the first time since 2014.
Analysts at JPMorgan said oil could “easily” hit $120 a barrel if there are any disruptions to oil flows from Russia to Europe, it’s largest customer. Russia is the world’s number two producer of both oil and natural gas, second only to the United States. It’s possible that Russia could weaponize oil and natural gas, which would damage the European economy.
How Would a Russia/Ukrainian War Affect Interest Rates?
Wall Street believes its possible the U.S. Federal Reserve could hike its key lending rate five, six, or seven times in 2022 in order to combat soaring inflation, which is raging at 7.5%. On the other hand, there are fewer issues with the supply chain crunch then there was a few months ago.
If Russia does attack Ukraine, chances are the Federal Reserve, Bank of Canada, and other central banks will be more dovish, and put potential rate hikes on the back burner.
That unpredictability might not last for long, though. History shows that the stock market rebounds quickly after Black Swan events and geopolitical tensions dissipate.
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January was not kind to North American stocks and with concerns about a war between Russia and the Ukraine, that volatility is expected to continue. Despite the erratic behaviour, the trading professionals at Learn-to-Trade.com understand that this could open up a window of opportunity for risk-tolerant investors.
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