Commonfund Perspective on the Russian Invasion of Ukraine

February 25, 2022 |
2 minute read

Key Takeaways

  • As widely anticipated, Russia invaded Ukraine on Thursday, February 24th, causing volatility to spike across the capital markets globally.
  • By the closing bell in the U.S., however, stock markets rallied, closing in positive territory; and treasury yields recovered as investors were buoyed by comments from President Biden.
  • The short- to medium-term impacts remain uncertain, so we expect heightened volatility to continue.
  • We are watching carefully as the situation evolves, and our investment decisions, as always, will be driven by our assessment of intermediate and long-term impacts, not on short-term daily or intra-daily volatility.

On February 24, 2022, after weeks of posturing and futile attempts at negotiations, Russia attacked Ukraine, vowing to “demilitarize” the country and replace its leaders. While ongoing uncertainty around Russian intentions has been part of the “risk off” environment this year, market jitters were already heightened prior to these most recent events due to concerns over high inflation, a hawkish turn by the Fed, and elevated market valuations.

The volatile reaction by markets to the news out of Russia was to be expected as investors digested the short-term and unknown longer-term impacts of a material geopolitical event. While the S&P 500 began the day down over 2.6 percent, it eventually rallied to close up 1.5 percent, as fears of another inflationary spike abated following President Biden’s comments that Russian sanctions would be targeted toward sectors such as technology and banking rather than oil. This led to a tech rally with the NASDAQ index closing up 3.4 percent, the largest one-day gain since March 2021. Similarly, while the yield on 10-year U.S. Treasury notes at one point fell to 1.85 percent, they ended the day at 1.97 percent as sentiment shifted. WTI crude spiked nearly 9 percent intra-day only to settle in up just under 1 percent.

European markets had already closed prior to President Biden’s address and the subsequent U.S. equity market turnaround. However, it is unclear if Europe will stage a similar recovery given it will likely be more severely impacted by the geopolitical unrest. Two of Russia’s top five trading partners are Germany and the Netherlands, while Italy, the UK, Poland, and France are in the top 12. In contrast, Russia is a relatively small trading partner with the U.S. with a trade deficit of $23 billion in 2021, mostly driven by energy imports. Additionally, since 2018, Russia has reduced its holdings of U.S. Treasuries to negligible levels. 

Federal Reserve officials today signaled that this event will not deter the FOMC from its hawkish posture and desire to tame inflation that is now at a 40-year high. However, they did acknowledge that implications of the Ukrainian situation for the medium-term economic outlook in the U.S. will be a factor in setting the pace at which to remove accommodation. 

Given the uncertainty both domestically and abroad, we anticipate a continued volatile environment for capital markets. While it is difficult, and perhaps foolhardy, to tactically position portfolios in anticipation of or in reaction to geopolitical events, we have been taking steps to reduce overall risk in client portfolios. At the end of December, we moved our discretionary portfolios from an overweight to a neutral position in equities while expressing a preference for credit over core fixed income due to the rising rate environment. We have been in contact with our managers to assess portions of the portfolio that may be impacted by the events unfolding in the Ukraine. We will continue to evaluate any changes to the market and economic environments stemming from this recent news. However, while we must carefully watch significant events such as the Ukrainian situation, our decisions are driven by our assessment of their impacts on capital markets over the intermediate and long term, not on short-term daily or intra-daily volatility.

Deborah Spalding


Deborah Spalding

Chief Investment Officer

Deborah Spalding


Ryan Driscoll

Managing Director

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