Will the War in Ukraine Cause the Market to Crash?

The Russian invasion of Ukraine has caused many investors to question whether they should continue to hold stocks or move to more defensive assets. While these concerns are acknowledged given that some divested their assets when the conflict started fearing the market would crash, unfortunately the research does not support these concerns.

Do wars negatively impact the stock market?

During times of war, the stock market tends to be pretty resilient. Over the last 100 years, there has been at least one war occurring somewhere in the world. If we narrow our focus to the more significant wars that relate to the Australian and/or US markets, there is mixed results as to whether a war negatively affects the stock market or whether it is just the economics at the time that was the driving force behind how the market unfolded.

Either way, one thing is certain, and that is that markets don’t just don’t crash because a war breaks out. In fact, markets have been known to rise during times of war. While the severity of any move up or down can be affected by either an acceleration or slowing of a trend and, at times, stalling of the trend, our research indicates that markets are more likely to continue following the economics of the day.

The key to understanding the current market is the fact that the Russian invasion of Ukraine was a known fact and so any social mood that might have driven the masses to react was already in play prior to the invasion.

Since the invasion commenced, the Dow Jones, S&P500 and All Ordinaries Index are all trading higher. Despite the markets showing some weakness in the last few months, this is due primarily to the normal market cycles rather than the invasion itself.

What were the best and worst performing sectors last week?

The best performing sectors included Financials up 2.20 per cent followed by Consumer Staples up 0.28 per cent and Consumer Discretionary down 0.47 per cent. The worst performing sectors included Materials down 3.44 per cent followed by Information Technology down 1.79 per cent and Communication Services down 1.63 per cent.

The best performers in the S&P/ASX top 100 stocks included Incitec Pivot up 12.80 per cent followed by Northern Star Resources up 6.72 per cent and Evolution Mining up 5.48 per cent. The worst performing stocks included Rio Tinto down 11.74 per cent followed by Bluescope Steel down 9.48 per cent and Megellan Financial Group down 8.27 per cent.

What's next for the Australian stock market?

The All Ordinaries Index was rather mixed last week falling just 0.76 per cent. While the market was bearish earlier in the week, the good news is that it did not fall below the low that unfolded two weeks ago. Given that the market didn’t do anything in the last week to indicate which direction it would take in the future, I encourage everyone to remain patient until this happens.

As I mentioned in my last report to confirm the market is moving up, we need to see price rise above the recent high of 7,646 points. If the market falls away, it is highly likely we will experience further falls with the market falling below 7,000 points.

Now is not the time for speculation nor is it the time to buy stocks that you may perceive as cheap. For those who are patient and cashed up, you will have the ability to take advantage of some great opportunities when the market does settle on a direction.

For now, good luck and good trading.

Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also author of the award winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good book stores.