February 2022

After several weeks of escalating tensions, this morning (February 24th) Russia launched a military invasion of Ukraine. Ukraine reported Russian troops and tanks crossing its borders from Russia and Belarus. Missile strikes have been launched against the Ukrainian capital of Kyiv and other cities. In response to Russia’s act of war against Ukraine, the U.S. and its allies are expected to announce sweeping sanctions focused largely on Russian finances. Restrictions are also expected to be placed on Russian imports for critical sectors related to defense and aerospace. U.S. and its NATO allies have said repeatedly that they would not send troops into Ukraine, which is not a NATO member but were seeking membership. NATO instead wishes to cause severe economic damage to Russia with its sanctions,

hoping that will cause Russia to deescalate. Many countries enacted earlier sanctions days ago after Russia announced that it would recognize two pro Moscow areas of Ukraine – Donetsk and Luhansk – as independent states. Germany notably announced it would block the Nord Stream 2 pipeline, designed to deliver natural gas from Russia to the rest of Europe. The pipeline had been completed and was awaiting German approval to begin operating.

Stock markets reacted negatively this morning, with Asia notably impacted. In terms of Russia’s own equity market, the MOEX was down significantly. Oil prices were up over $105 USD, the highest they have been since 2014.

Understandably, you are probably wondering how markets will react going forward to this military escalation. First, we must look at how markets responded to past acts of war. While market uncertainty may persist for some time, there are two important messages you should keep in mind: First, acts of war rarely have large or lasting impacts on markets. Second, periods of increased market volatility are common during times of geopolitical tension. A strong investment plan is designed to withstand periods of volatility so investors don’t have to react. With that in mind, let’s look at some evidence that shows how markets typically respond to acts of war. The following chart looks at how U.S. equity markets have

historically reacted in response to acts of war and terrorism. It is clear that markets tend to react strongly, but temporarily to these types of events.

This information has been prepared by Shannon Straathof who is an Investment Advisor for IA Private Wealth® and does not necessarily reflect the opinion of IA Private Wealth. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Investment Advisor can open accounts only in the provinces in which they are registered. IA Private Wealth® is a member of the Canadian Investor Protection Fund and the Canadian Investment Regulatory Organization.