Stocks quietly rose yesterday amid optimism that tension between Russia and Ukraine will ease and American airstrikes will push back militants in Iraq. The question at hand are geopolitical risks waning or is this just a pause. Obviously all hope the former.
Approximately 15-16 years ago the prevailing view on Wall Street is that the business cycle was dead. The global economies had entered into a New Paradigm where this newly created multipolar interdependent world would make war and conflict prohibitly expensive under the simple guise that economics is the primary motivation of behavior. The purse is more powerful than the gun. Valuations skyrocketed partially upon this view.
Will tension continue to rise between the East and the West, tensions that will increase the scope and degree of economic sanctions against Russia? If sanctions are increased, what impact will these sanctions have upon global growth?
Comments from the Polish government stating Russia is on the verge of invading Ukraine spooked stocks. Putin is showing no sign of backing down since last week’s tightened sanctions as Russia is massing even more troops on its neighbor’s border.
Perhaps “the dog days of summer” is an accurate description of yesterday’s trading until a late afternoon geopolitical inspired rally that pushed equities higher. All markets were quiet, volume subdued, an environment perhaps amplified by the lack of any significant headlines until the 3:00 P.M headlines.