Market is too relaxed given Russia-Ukraine war risks, Goldman analysts warn

Investors in the US and abroad could be growing overconfident with their positive bets on stocks given the potential downside risks that still exist for a Russia-Ukraine war that has shown little progress toward peace, Goldman Sachs analysts warned.

The S&P 500 has climbed more than 5% in trading this week and eclipsed its level prior to the start of Russia’s invasion of Ukraine — with similar upward trends for European stocks.

Meanwhile, oil prices that surged in response to the outbreak of war in Ukraine have begun to dip despite lingering fears that hostilities will further disrupt the struggling global energy market.

Goldman analysts say the recent trends suggest markets are not priced for the possibility for further economic volatility if the war worsens.

“This points to a significant relaxation in the market’s assessment of the global implications of the Ukraine invasion,” Goldman strategists Dominic Wilson and Vickie Chang said in a note to clients Thursday, according to Marketwatch.

“While many assets could shift further to our upside case, they are now more vulnerable if progress toward a resolution proves fleeting or if energy supplies are disrupted more severely,” they added.

Oil prices have also dropped significantly following their recent spike. Brent crude oil, the global benchmark, was trading at roughly $107 per barrel on Friday after surging to close to $130 earlier this month. West Texas Intermediate crude oil, the US benchmark, was near $104 per barrel after spiking above $120 after the Biden administration announced a ban on Russian oil imports.

The relaxed investment posture is also evident in Europe. Stoxx Europe 600 index has nearly erased its losses sustained since Russia began its invasion on Feb. 24.

The Goldman analysts argue these gains could be short-lived — especially if the Russia-Ukraine war further disrupts oil shipments that were already lagging behind demand.

In the bank’s worst-case scenario, escalating violence in Ukraine could cause the S&P 500 to drop about 8% from its level at the close of trading Thursday. And additional disruption to Russian oil and gas shipments could cut US economic output by a quarter percentage point this year — with worse impacts in Europe.

Major US stock indices ticked slightly higher in trading Friday. The tech-heavy Nasdaq index was up more than 1% as of midday, while the Dow and the S&P 500 notched minor gains.