Here’s what a Russian invasion of Ukraine would mean for markets

Treasurys are a traditional haven during periods of geopolitical and economic stress. A rally in Treasurys would pull down yields, which move in the opposite direction of prices. A Treasury selloff has pushed up yields, with the 10-year Treasury rate TMUBMUSD10Y, 1.792% finishing near 1.77% Friday after hitting a nearly two-year high earlier in the week.

The Swiss franc, another popular haven, could also rally, with the euro/Swiss franc EURCHF, -0.02% currency pair likely to fall to CHF1.03 “on a frozen rope if Russia moves,” Donnelly said. The euro bought 1.043 francs Friday.

Russia, which has already placed more than 100,000 troops on Ukraine border, this week began moving tanks, infantry fighting vehicles, rocket launchers and other military equipment westward from bases in its Far East, The Wall Street Journal reported, citing U.S. officials and social-media reports.

Russian President Vladimir Putin is seen using the threat of an invasion as leverage, as Moscow demands that NATO never offer membership to Ukraine or Georgia. Russia has pressed a range of other demands, including that U.S. and allied troops leave NATO’s East and Central European members. Talks this week between Russia, the U.S. and NATO failed to produce a breakthrough. The U.S. and its allies have pledged to respond to any Russian invasion of Ukraine with harsh economic sanctions.

Jitters rose Friday after a cyberattack left a number of Ukrainian government websites temporarily unavailable. Ukrainian Foreign Ministry spokesman Oleg Nikolenko told the Associated Press it was too soon to tell who was behind the attack, “but there is a long record of Russian cyber assaults against Ukraine in the past.”

Russia’s invasion and annexation of Ukraine’s Crimea peninsula in 2014 sent shudders through global markets, but as is often the case around geopolitical flare-ups, volatility soon subsided.

“In 2014, U.S. equities had some meaningful downdrafts on Ukraine (March and May) but shook off the story rather quickly. I don’t think equities are a good way to play this scenario,” Donnelly said.

When it comes to equities, the takeaway from past geopolitical crises may be that it’s best not to sell into a panic, wrote MarketWatch columnist Mark Hulbert in September.

He noted data compiled by Ned Davis Research examining the 28 worst political or economic crises over the six decades before the 9/11 attacks in 2001. In 19 cases, the Dow Jones Industrial Average DJIA, -0.56% was higher six months after the crisis began. The average six-month gain following all 28 crises was 2.3%. In the aftermath of 9/11, which left markets closed for several days, the Dow fell 17.5% at its low but recovered to trade above its Sept. 10 level by Oct. 26, six weeks later.

Donnelly said he tends to fade market reactions to political angst.

“Geopolitical issues are simmering all the time and if you look back on history, very, very few geopolitical events impact markets for more than a few days,” he said, but noted that there are exceptions — and when they happen, “it’s huge.”

U.S. stocks posted a mixed finish Friday, leaving the Dow Jones Industrial Average a 0.9% weekly fall and the S&P 500 SPX, +0.08% and Nasdaq Composite COMP, +0.59% each down 0.3%. Early 2022 weakness in U.S. equities has been blamed largely on a jump in Treasury yields tied to surging inflation pressures and expectations the Federal Reserve will be much more aggressive than previously anticipated in raising rates and tightening policy.

The VanEck Russia exchange-traded fund RSX, -1.54% is down 6.6% so far in January and has dropped over a quarter from a more-than-nine-year high set in late October. The Russian ruble USDRUB, -0.32% is down more than 9% versus the U.S. dollar over roughly the same stretch.

Barron’s: As Russia-Ukraine Tensions Heat Up, Russian Stocks May Be Too Cheap to Resist

Meanwhile, analysts say investors haven’t fully priced in what an invasion would mean for commodities, particularly natural gas NG00, +0.82%, wheat W00, -0.54%, and corn C00, +1.79%, wrote MarketWatch’s Myra Saefong.

Europe relies heavily on Russian gas transiting through Ukraine, and particularly so given 2022 has started with record-low European gas stocks. An invasion would likely scuttle approval of operations for the recently completed Nord Stream 2 pipeline, which is set to bring more natural gas directly to Germany, bypassing Ukraine.

Oil futures have rallied to begin 2022, with West Texas Intermediate crude CL00, +2.62% the U.S. benchmark up more than 11% since the calendar flipped, while global benchmark Brent crude BRN00, +0.42% has advanced more than 10%. Both are trading not far off multiyear highs set in November.

Read: Oil rallies as analyst warns Ukraine crisis could be a ‘seismic event’ for the energy market

“With oil prices firmly in the White House political red zone and a Russian invasion of Ukraine still a front and center concern, the scramble for additional barrels will likely become an increasingly urgent priority,” wrote analysts at RBC Capital Markets, in a Thursday note.