Global financial markets have had a rough time since Russia’s invasion of Ukraine, but it is not over yet

A year after Russia invaded Ukraine and set off the bloodiest conflict in Europe since World War II, global financial markets seem to no longer carry on the lasting shocks on a daily basis, but the full consequences and implications are yet to come, said a strategist at Deutsche Bank. 

U.S. stocks tumbled on Feb. 24, 2022, with the Dow Jones Industrial Average

opening down more than 700 points, or 2.2%, while the large-cap index S&P 500

slumped 1.8%, hours after Russian President Vladimir Putin announced the military action. Meanwhile, oil prices rallied with the U.S. benchmark West Texas Intermediate crude



rising to $100 a barrel on the New York Mercantile Exchange for the first time since 2014.

See: What Russia’s invasion of Ukraine means for markets a year later

As of Friday, the Dow industrials were slightly lower from a year ago after tumbling for most of 2022 and bouncing off October lows in early 2023. The S&P 500 slumped 7.4% in the past 12 months, while the Nasdaq dropped 15.5%, according to Dow Jones Market Data. 

Meanwhile, bonds wrapped up their worst year on record in 2022. Instead of holding up as stocks tumble, almost every type of bond — from the U.S. and European government bonds to top-rated corporate bonds — posted double-digit losses in the past year.

A steep U.S. Treasury selloff sent yields soaring, with the yield on the 2-year note

rising 3.67 percentage points for the year, while the 10-year yield

jumped 2.33 percentage points, the largest on record based on data going back to 1977, according to Dow Jones Market Data. Bond prices and yields move in opposite directions. 

The carnage, particularly in U.S. markets, came as the Federal Reserve aggressively ratcheted up interest rates in its effort to calm soaring inflation that had accompanied the recovery from the initial COVID shock. A series of hikes began in March of last year.

“With regards to the last year since the Ukraine invasion, most of the negative bond returns of the last three years have occurred in this period,” wrote Jim Reid, a strategist at Deutsche Bank, in a note to clients on Friday.

“The war in Ukraine started only a few weeks before the U.S. led the DM [developed market] global hiking cycle. So although the backdrop for the bond selloff was already in place with the extreme covid stimulus, it wasn’t until the central banks started hiking that the bond dam broke.”

In the chart below, Deutsche Bank highlights returns for selected major asset classes over the 12 months since the invasion.

Total return performance of selected major global financial assets in last year since the start of Ukraine War (in USD).


Since February 2022, global investors have pulled a total of $135 billion from bond funds, according to analysts at BofA Global Research, citing EPFR Global data in a weekly note. Meanwhile, investors have allocated $354 billion to cash since Russia’s invasion of Ukraine. Equity funds have witnessed a total of $40 billion of inflows, and gold has seen $12 billion of outflows, said Michael Hartnett, chief investment strategist at BofA Global Research. 

Contrary to what many would have expected, given Europe’s proximity to the war, European equities have outperformed U.S. equities over the past year, as investors took money out of U.S. equities to add to their exposure in international stock markets, betting European markets could benefit from a weaker dollar.

The MSCI Euro index
which tracks the performance of large and mid-cap representation across 15 developed markets in Europe, climbed more than 8% over the past 12 months, while the MSCI USA slumped 7.2%, according to Dow Jones Market Data.

“The dollar has rallied 6.5% against the euro; the European outperformance in local currency terms is even higher. The overall outperformance could of course be more to do with a much higher weighting to tech in the U.S. which has underperformed on much higher rates and extreme starting valuations,” said Reid. 

After rallying for most of 2022, the dollar’s value relative to other currencies had dipped over the past few months as the Federal Reserve spoke of making progress in bringing down inflation pressures. However, a flurry of hotter-than-expected January inflation reports helped buoy the greenback and reversed the dollar losses. The ICE U.S. Dollar Index

jumped 3.2% to 105.20 this month. 

See: Why U.S. fuel prices continue to feel the effects of Russia’s invasion of Ukraine

Meanwhile, the U.S. benchmark crude ended Friday around 17% below the level seen just ahead of Russia’s invasion of Ukraine.

“Ironically, given the war in Europe, oil is one of the worst performers over the last year. Even European gas prices are more than 50% lower than they were a year ago, albeit after being up 200% by the end of August,” said Reid.

See: The real impact of Russia’s invasion of Ukraine on commodities