Over the past few weeks, we’ve been following the conflict between the Ukraine and Russia. In the beginning of the conflict over Crimea, we watched markets drop. Most attributed the drop in the markets to anticipation of sanctions being placed on Russia. Not only could sanctions have a severe effect on the Eurozone, they could limit trade in several other areas leading to markets falling even further. Now here’s the interesting thing… sanctions have been placed on Russia, but following the sanctions, the DOW rose nearly 200 points. I know; it threw me for a loop too! I’ve been digging into this and I think I’ve figured out why.
Starting With the Sanctions
The West has warned Russia that if they continue to pursue the strategic Crimea Peninsula, there would be a price to be paid. After warnings of sanctions were thrown around and ignored; on Monday, the first rounds of sanctions were placed on 21 individuals closely tied to illegal activity in Crimea. The sanctions include both asset freezes and travel bans.
The Big Concern Surrounding the Sanctions
What makes this such an interesting story is that sanctions really do scare investors, but the markets continue to go up! The biggest concern surrounding the first round of sanctions is that it may lead to a trade war that has an effect on the entire global economy.
With Such Concerns, Why Are The Markets Moving Up?
Although a trade war that takes a toll on the global economy is a real concern, for some reason, investors just don’t seem to care. There are big things happening in world markets, and the bulls are ignoring what they believe will soon pass. “What big things am I talking about?” you ask.
There are tons of other great things going on in the investing world that are taking attention away from the Russia/Ukraine conflict. Just take a look at your favorite stocks, chances are, you’ll see something just as interesting. So, the bull market continues right?
Will Sanctions Eventually Take A Toll On The World Economy?
It’s hard to tell. I can say that the sanctions that were imposed don’t restrict much. However, if tougher sanctions were imposed on larger groups, we could definitely see worldwide financial turmoil. The markets tell us that investors don’t think it’s going to happen, but it’s still a possibility.
In my opinion, I don’t see worldwide financial turmoil as a result of any sanctions imposed now or in the future. I think that before these types of sanctions would be imposed, the decision makers would put serious thought into how they would affect the world.
The bulls continue to maintain their control of the market, even though sanctions have been imposed. Although tougher sanctions could lead to financial calamity, overwhelming investor thought seems to be that that’s not going to happen. Only time can tell, but for now, I think markets aren’t just safe, they’re thriving!
Joshua Rodriguez is the official staff writer for Modest Money. He's also been published in several top finance blogs including FatWallet.com, FrugalRules.com and more. To connect with Joshua, visit his website or reach out to him on Google+ .