U.S. stock markets have been declining since the beginning of January and fell further into correction territory after the Russian invasion, though markets recovered from their lowest levels since then. During this correction, the S&P 500 declined nearly 15% from peak to trough, while the Russell 2000 Index and the Nasdaq Composite both briefly entered bear market territory (down 20% or more).

While we recognize that the current geopolitical landscape in Eastern Europe remains highly uncertain, we believe history may be a reasonable guide for what to expect from financial markets.

If history is any guide – and by history, we mean Iraq’s invasion of Kuwait and N. Korea’s invasion of S. Korea, since these are the most recent and similar events - financial markets tend to peak before the actual conflict date, as tensions rise, and the overall S&P 500 decline has historically been 14-21%. Therefore, equity markets may have more downside in the short term, but we may be closer to the end of this correction than the beginning, based on current geopolitical circumstances. However, we do expect financial markets to continue to experience heightened volatility in the short term.

In our experience, sometimes individual investors tend to make emotional and often irrational decisions during periods of financial market volatility. Your emotions in situations like these can be your greatest enemy when it comes to making the right financial decision. That’s where a team of professionals who have experienced this before and depend on a range of indicators and analysis can be invaluable to investors. 

Investor sentiment has declined to very pessimistic levels, reaching similar levels of negativity to those experienced during the March 2020 pandemic driven sell-off, the 2008 Lehman Brothers’ bankruptcy sell-off, and the March 2009 Financial Crisis bottom. Each of these previous events frightened investors, yet also presented good buying opportunities for those with longer time horizons. For example, more and more people moved to bonds as we saw the approaching combined headwinds of rising inflation and interest rates. 

These headwinds are here now, and the Federal Reserve has raised its benchmark, and indicated it will raise rates 6 more times this year. But, these headwinds are likely already reflected in current market prices and that means valuations have improved in many sections of the markets, especially the bond markets. 

Preferred stocks are also showing some opportunities as we see these latest shifts in the markets. 

The two main takeaways here are 1) don’t let your emotions get the best of you and 2) even in times of crisis, there are opportunities for savvy investors.