Week in Review: February 25, 2022

Markets bucked conventional wisdom by ending the week higher, not lower, following Russia’s invasion of Ukraine. In a prime example of how difficult it is to time market events and why trying to do so is often fruitless, the S&P 500 gained 3.7% in the two day’s after Russia’s invasion of Ukraine, following a 5.6% decline in the four days prior to the invasion. Interest rates were also volatile during the week, with the U.S. 10-Year Treasury yield ranging from 1.85% to 2.01%, before ending the week at 1.97%, up 0.04% from where it began the week.

Over the course of the week and into the weekend, the U.S., European Union, Japan, Australia, and others, enacted a series of economic sanctions first intended to dissuade, and then punish, Russia for its actions. The sanctions targeted a wide range of industry’s including Russia’s technology, finance, energy, aerospace, and military sectors. In addition, the foreign assets of many Russian oligarchs, and even Putin himself, were frozen. On Thursday, following the commencement of the invasion and the ongoing levying of sanctions, the Russian stock market fell 33%, while the ruble fell to an all-time low against the dollar. Both recovered some of those losses on Friday.

Determining how the ongoing conflict evolves is difficult, with conflicting reports related to Russian progress. A Russian “victory” may prove to be pyrrhic, however, depending on the extent of longer term damage, the Russian economy suffers from recently enacted sanctions. One thing that does seem certain is that after years of vacillation in which the US and Europe alternately attempted to engage and contain Putin, they will now view him firmly as an adversary.