Investors should brace themselves for a sharp sell-off in risk assets globally if the Ukraine-Russia situation morphs into a full-blown crisis, warns strategists at Goldman Sachs.
The S&P 500 is at risk for a 6.2% drop in a full-on crisis scenario if Russia invades Ukraine and global superpowers respond with retaliatory measures such as sanctions, said Goldman Sachs strategist Dominic Wilson in a new note to clients.
Sell-offs would be more severe for the tech heavy Nasdaq and the small-cap Russell 2000. Wilson sees 9.6% and 10.2%, worst-case scenario, respective declines.
Overseas markets such as the Euro Stoxx 60 (-9.3%), Nikkei 225 (-8.6%) and MSCI emerging markets (-7.7%) could also experience sizable declines.
“While the impact generally looks largest on local and regional assets, it seems plausible that these geopolitical risks are also starting to have a meaningful impact on global assets,” Wilson added.
As for what assets will relatively outperform in a full-blown crisis scenario, Wilson sees gold gaining 5.4% and oil shooting higher by 13.4%.
To be sure, markets globally continue to be on edge as traders await to see if Russia invades Ukraine. Many traders have already begun to position for a potential invasion by rotating into perceived safe havens.
Gold prices have advanced in 12 of the past 15 sessions. Consumer staple giant Coca-Cola has been seen its stock rocket to a record high this month.
Meanwhile, oil prices have risen about 9% in February to nearly $100 a barrel amid fears Russia’s oil output is hit. Russia is the world’s third-largest producer of oil.
“I think what is most important about the Russia-Ukraine situation is not so much the volatility it’s causing on a very near-term basis, but the impact,” Charles Schwab chief investment strategist Liz Ann Sonders said on Yahoo Finance Live. “We know in the past that surging oil prices, especially in a waning growth environment, alone, have caused recessions. You add that into the mix the energy crisis happening around the globe already, and the fact we are now heading into a Fed tightening cycle, I think it would probably elevate fears about recession if, indeed, we see some sort of protracted military event.”
