Markets Driven by War?

It's been a wild ride during these days since Russian troops invaded Ukraine. Each day we watch markets react to the reality of war with occasional rumors of hope that the sanity of peace might prevail. 

Market do respond to headlines. And, in our day, those responses can be driven to extremes by the algo traders who have taken over the majority of the volume of trading. But such responses may only be temporary, no matter how extreme. 

If we consider how the stock market behaved in January, before the war began, we might find that the war's impact has simply magnified what was already in motion. The stock market was due for at least correction in an ongoing Bull Market; or a Bear Market had already begun with the January declines. The war threw fuel on a fire already kindled.

Bonds were already suffering from rising yields, spurred by rising interest rates, whipped upwards by inflation. That's one view. Will bonds reverse their declines as investors flee to them - specifically treasuries - as a safe haven for their bloodied stock holdings? We may have seen the beginnings of that.

But even if so, could it be that the 40-year Bond Bull Market that sprung to life in the early 1980s has finally entered its final stage, if not the first stage of a longer-term Bear Market? If a Bear Market in bonds joins with a Bear Market in stocks, what then? Do we stick with those stock and bond allocations that have served us since the long cycle stock and bond bull markets ignited at virtually the same time in those early 1980s?

As we contemplate all of this, the war continues. The flood of commentary about how the stock market might react and has historically reacted to war in the past ultimately won't serve us well. The results have varied. In most cases, markets were not waylaid by war. In fewer cased, they were. That's really all that we garner from all the stats and charts the financial media never tires of putting out there. With such understanding, all the numbers become nothing more than chatter that deflects our minds from what to do with our money if stocks and bonds both enter long-term Bear Markets, commensurate with the long-term Bull Markets since the 80s.

Perhaps more importantly, what do we do with the flood of media about the war that continues to pour over us? Is there some way to filter this and arrive at at least some basic understanding of what's really going on. Our government along with most world governments - along with most media sources sing the same song: Putin a devil, the Russians irrational aggressors, the Ukrainians the victims who need all the help they can get. Opposing this, a contrary story line: The Russian government was put upon by NATO reneging on their promise not to expand up to Russia's borders after the collapse of the Soviet Union - or some variation of that line of thinking. So the Russian troops are really defending their homeland and so they invade Ukraine to stop the NATO aggressors.

Oh, there are sub-stories galore, but I think that just about sums up the two sides in explaining how this unfathomable war came about. And, as is typically the case, there's some truth on both sides, and much manipulation of the facts that accompany it.

Rather than than add to the growing pile of interpretation of causes and predictions of outcomes, consider instead some simple facts:

Going all the way back to the 17th century when Peter the Great made his mark expanding what would become the Russian Empire, the pattern of Russian military aggression has been consistent. Ukraine has never tried to "incorporate" Russia into itself. It's ALWAYS been the opposite. And Russia's government, first under the Czars, continuing under the Communists, has always been to completely dominate its neighbors and force them into subjection. Despite the collapse of the Soviet Union and the splitting apart of that latest version of the Russian Empire, it would seem to make sense that the current Russian government has simply continued a centuries-old pattern.

So whatever the causes of the current war (although the Russian government will jail you if a Russian calls it that), to somehow interpret what's happened as the result of Ukrainians' desire to attack Russia makes no sense. 

Russian invaded Ukraine. Ukrainians are defending themselves against Russian aggression. That's the basic story. Anything that doesn't recognize this is pure propaganda intended to obscure the truth to someone's advantage.

At this point, there's nothing on the horizon to show a way out of this war. So markets will likely continue to respond to headlines. As for be driven by those headlines, that interpretation won't add to your understanding of what's really going on.