Market Volatility from Geopolitical Events and Higher Interest Rates

Tyler, Jordan, and Craig sit down to discuss market volatility driven by the current geopolitical events in Europe and the expected monetary policy tightening via fed fund rate hikes and balance sheet reduction by the Federal Reserve. The S&P 500 is currently in a 12% correction with the median stock in the index down over 16%. The NASDAQ-100 and Russell 2000 (small caps stocks index) are in larger declines, down 19%, with median stock declines of 23% and 33%, respectively.

Craig reviews the market reaction to geopolitical events since World War 2 highlighting the 20% correction in 143 days after the attack on Pearl Harbor and the subsequent recovery roughly 9 months later. With oil prices on investors and consumers’ minds combined with a correlation to the Russian energy supply to Europe, Craig reviews the market reaction in 1990 during Iraq’s Invasion of Kuwait. The S&P 500 fell 17% in less than 3 months and recovered the losses just 6 months after the invasion.

Jordan looks at the past eight rate hiking cycles and reviews the average return a year leading up to the hike as well as returns one year after the first-rate hike. Historically, stocks perform well before the first-rate hike as the economy is normally improving and employment levels are high. The initial market decline after the first-rate hike is recovered a few months after with average returns around 5% a year after the first hike.

We are thinking of the people of Ukraine and praying that as few lives will be lost in this needlessly tragic conflict as possible.

Charts discussed:

S&P 500 from Pearl Harbor to V-J Day

1st Gulf War starting with Desert Shield (Desert Storm began 1/17/91 and ended 2/28/91)