Why did the US markets recover?

Why did the US markets recover?

2022-02-28 • Updated

There’s nothing new in markets witnessing sharp crashes and volatility when geopolitical events happen. The initial and immediate reaction to these events is usually the most dramatic. The good news is that the impact is short-lived, lasting only for three months mainly. Although the escalation of the conflict between Russia and Ukraine may be devastating, the truth is that stocks can handle these geopolitical conflicts. We are now witnessing the first meaningful correction in the market after the strong performance in 2021. These types of geopolitical issues provide a good buying opportunity for long-term investors.

According to many analysts, we are in the midst of a structural bullish trend that is likely to continue over the next few years, and corrections will be part of that journey. History shows that 12 months after events like the current crisis, the market moves upwards. The markets' performance after the major geopolitical or historical events since World War II is much stronger than before. The markets even end the year in the green area most of the time.

However, this does not mean that Wall Street will not suffer from some turbulence and violent volatility in the short term.

Why did US stocks rebound after the military conflict between Russia and Ukraine?

From Thursday's trading session and its sharp crash, Wall Street's reversal has been wild. US stocks got rid of heavy losses and closed in the green. The major indices saw a massive comeback from sharp declines during the Friday session. The Dow Jones erased its heavy losses by more than 800 points. The Dow Jones Industrial Average jumped 815 points, or 2.5%, recording its best day since late 2020, after dropping 859 points last Thursday.  S&P 500 also rose 1.9%, after falling more than 2.6%. Nasdaq Composite Index rose 1.1%.

US500H1.png

Here is why the US stocks are resilient and flexible:

  1. The markets were somewhat ready for Russia's attacks on Ukraine after the news had warned them of the upcoming conflict. These warnings came daily from several weeks ago.
  2. There was no surprise when this happened, only we were not sure how the conflict would play, which led to the strong sell-off wave.
  3. Investors have ignored the Russian-Ukrainian news after being sure that it won't turn to full-scale war and that the United States and Europe will only impose sanctions. After the unknown became known, investors are looking for the best buying opportunities.
  4. Expectations of the potential talks between the parties.

In the end, global markets will remain unstable over the coming weeks. While we may see some short-term volatility, these uncertainties provide strong investment opportunities if a recession doesn’t follow. Therefore, traders may try to take advantage of these corrections and swings.

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