Musings on Markets: Russia-Ukraine Crisis Impact on Valuation, Risk Premiums, and Investment Strategy
This article analyzes the Russia-Ukraine conflict's impact on global financial markets, examining sovereign bond spreads, equity valuations, commodity prices, and inflation expectations across geographies and sectors. The author reassesses S&P 500 valuation using updated market conditions and explores investment implications through the lens of geopolitical risk, commodity inflation, and recession probabilities. The piece emphasizes the need for company-specific analysis rather than broad sector/geographic bets in response to market dislocations.
Metrics in this report
51%percent increase
regional average
January 1, 2022 to March 16, 2022
5.75%percent
baseline
S&P 500, January 1, 2022
6.92%percent
crisis-adjusted
S&P 500, March 16, 2022
4.24%percent
baseline
S&P 500, January 1, 2022
4.73%percent
crisis-adjusted
S&P 500, March 16, 2022
20%percent
updated
United States (increased from 15%)
25%percent
updated
Eurozone (increased from 17.5%)
130dollars per barrel
peak
Post-invasion spike, March 2022
80dollars per barrel
one-year futures
Market expectation of price normalization, March 2022
1.70%percent
baseline
Russia, January 1, 2022
10.56%percent
crisis
Russia, March 16, 2022 (peaked above 25%)
4,320index points
intrinsic value target
January 1, 2022 assumptions
4,197index points
intrinsic value target
March 16, 2022 assumptions (5.6% overvalued)
1.51%percent
baseline
January 1, 2022
2.19%percent
crisis
March 16, 2022
6.17%percent
baseline
Ukraine, January 1, 2022
28.62%percent
crisis
Ukraine, March 16, 2022 (peaked above 100%)