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Context to the War in Ukraine

Volume 93 No. 4 - April 2022

04-2022 Newsletter
Download PDF • 285KB

Last November, the first Russian troops gathered on the border with Ukraine. By December 7th, President Biden warned Russia of “strong economic and other measures” if an invasion of Ukraine were to occur. Both sides sparred over the following weeks, and Russian troops ultimately invaded Ukraine on February 24th. Widespread condemnation from nations across the world ensued, and the resulting economic sanctions have crippled the Russian economy.

Commodity prices such as oil and wheat have risen, which have added to already record-high inflation, as the global economy still recovers from pandemic-era supply shortages. We have also seen heightened volatility in the U.S. stock market.

Beyond the clear human and political tolls of the war in Ukraine, it is natural to wonder about the impacts of these hostilities on portfolios, even as the outcome of the war remains unresolved.

Impact on the Global Economy and Commodity Markets

The war in Ukraine has impacted the global economy and by extension, our U.S. economy at home. We have seen increasing stress on supply chains and volatility in commodity markets.

In our March 9th letter, we noted that the price of a barrel of Brent crude oil had risen, and gasoline had surged to more than $4 per gallon nationwide (and over $6 per gallon in California). Oil continues to experience volatility and is currently around the $100 mark. Prices of food related commodities such as wheat and corn have risen as well.

When the prices of commodities—fundamental inputs that fuel the balance of supply and demand in the economy—rise, they stoke inflation and bring about more volatility. The energy sector often sees a direct effect, as it has this time. This volatility cascades into other industries in the form of higher energy prices, a key input to many parts of the economy. Although many economists look at “core” inflation, which removes the volatile food and energy costs, we know these two are integral to the daily lives of both consumers and businesses.

Implications for the U.S. Stock Market

Higher commodity prices could dampen consumer spending, which is already facing higher interest rates. On March 16th, the Federal Reserve announced an increase in the Federal Funds rate, the short-term rate they control. This is the first increase of that rate since 2018. This is a sign that the economy is improving and no longer needs the pandemic-era accommodative monetary policy that was in place the past two years. We hope that Fed Chair Jerome Powell will oversee a policy of measured increases to interest rates that will help moderate inflation, while also allowing the economy to continue to grow and keep unemployment low.

Although each is unique, we can look back on historical geopolitical conflicts and their effect on markets as a point of reference. Over the past sixty years, surrounding geopolitical tensions, including the Cuban Missile Crisis, President Nixon’s impeachment proceedings, and the 2014 Russian seizure of Crimea, the U.S. stock market averaged a 5% total return six months after the event, and a 9% average total return one year after the event.[1] This data can serve as a good point of reference, but it is important to note that every event is different and we have yet to see a resolution of the current war in Ukraine.

While historical performance does not predict future results, experience suggests to us that events such as the war in Ukraine heighten volatility in our financial markets. We believe in owning the stocks of high-quality companies with experienced management teams and the resources necessary to withstand economic aberrations.

Sixty years ago, in 1962, Investment Counsel discussed the implications on client portfolios from a different standoff with Russia: The Cuban Missile Crisis. Investment Counsel wrote:

“Nevertheless, either outcome, that is, a genuine retreat by Russia from her Cuban venture without revengeful follow-up elsewhere or a localized non-atomic war, should, as stated in our earlier memorandum on the crisis, favor the holding of common stocks.”

Investment Counsel wrote these words in November 1962, while the United States and Russia navigated a standoff in which the two nuclear superpowers sparred over how to resolve a crisis that had stationed nuclear-armed Soviet missiles just 90 miles south of Florida, in Cuba. While they considered the various outcomes that could end the standoff, then, similar to now, Investment Counsel concluded that regardless of the outcome, prudent investing favored the “holding of common stocks.”

This advice still rings true today. For the companies on our approved stock list, we look for strong pricing power, strong balance sheets, and experienced management teams. These qualities give companies the ability to navigate uncertain times. We find that these stocks can perform well as hedges for geopolitical unrest, and weather the inflation that often accompanies this unrest.

Where Do We Go from Here?

The Cuban Missile Crisis ended when President Kennedy and Soviet leader Nikita Khrushchev reached a compromise that saw the withdrawal of the Soviet missiles from Cuba in exchange for U.S. promises not to invade the island nation and to withdraw U.S. missiles from Turkey.

A best-case scenario for the current war in Ukraine would be similar: a de-escalation and eventual resolution.

While the outcome of the war in Ukraine remains uncertain, we can expect continued volatility in our stock market, spurred in part by the effects of the war on our commodity markets. We hope for a peaceful resolution, and soon.

We are here to answer your questions. We have helped investors through times of uncertainty—financial, economic, and political. Let us help you. Call us, stop by, or send an email. As written in The Investment Letter newsletter during the 1962 Cuban Missile Crisis,

“We are watching these developments and will report our views when events clarify the outcome.”

We continue to monitor the situation in Ukraine as events unfold. Our thoughts are with the millions of people affected.

[1] “Market perspectives: March 2022” Vanguard. 1 March 2022,,-Notes%3A%20Returns%20are&text=Sources%3A%20Vanguard%20calculations%20as%20of,invest%20directly%20in%20an%20index.


Investment Counsel Inc., a Division of LaFleur & Godfrey, is a registered investment adviser. Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.

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