Stocks wavered Monday as market participants tried to process what took place in Russia over the weekend and continued to grapple with last week's losses – a retreat driven by fears that hawkishness on the part of global central banks could spark an economic downturn.
Markets mostly took the short-lived mutiny in Russia over the weekend in stride Monday. Although the major benchmarks struggled for direction throughout the session, they did so by vacillating between comparatively small losses and gains. The fact that the challenge to President Vladimir Putin's authority occurred when markets were closed greatly lessened its impact on volatility, experts said, but that doesn't mean the geopolitical uncertainty unleashed by the coup won't continue to reverberate.
"So far, the markets appear to be taking a wait-and-see attitude toward the weekend's eye-opening developments in Russia," said Chris Larkin, managing director of trading at E*Trade, in a note to clients. "But that element of geopolitical uncertainty unfolded just as the stock market suffered its first down week since mid-May as the Fed stuck to its hawkish script on interest rates."
Markets retreated last week as Federal Reserve Chair Jerome Powell reiterated the central bank's view that it would likely need to raise interest rates two more times before the end of the year. Adding to the selling pressure, the Bank of England, Swiss National Bank and central bank of Norway increased their benchmark interest rates last week.
Rate hikes and expectations for further tightening have cost the market some of its momentum in an otherwise strong year for equities. Companies whose shares have rallied sharply on the promise of generative artificial intelligence (AI) have come under particular duress lately. Among the 30 Dow stocks, Microsoft (MSFT) and Apple (AAPL) ended Monday's session in the red. Other mega-cap AI names, such as Nvidia (NVDA) and Google parent Alphabet (GOOGL), also weighed on the benchmark indexes.
At the closing bell, the blue-chip Dow Jones Industrial Average fell less than a tenth of a percent to 33,714, while the broader S&P 500 declined 0.5% to end at 4,328. The tech-heavy Nasdaq Composite shed 1.2% to finish at 13,335.
Rebalance your risk with ETFs
Investors should be grateful that the short-lived uprising in Russia happened when markets were closed. It surely saved them from a spasm of volatility. But the aftershocks could continue to reverberate for some time.
"The Russian mutiny reveals the underlying trend of domestic instability," writes Matt Gertken, chief geopolitical strategist at BCA Research. "Russian instability is negative for global stability."
With the war in Ukraine "exacerbating the problem," investors should expect an increase in the equity risk premium, Gertken adds. So what does that mean? When the equity risk premium rises, investors should theoretically favor stocks over bonds in a portfolio.
If you're looking to rebalance in light of heightened geopolitical uncertainty, cheap and diversified ETFs can be your best friends. From the best defensive ETFs to top-notch growth ETFs to the best ETFs across asset classes, investors have plenty of tools to meet this latest global challenge.
