How global financial assets have performed in the year since the Russian invasion of Ukraine

A year after Russia invaded Ukraine and sparked the bloodiest conflict in Europe since World War II, global financial markets no longer appear to be bearing the brunt of the ongoing shocks on a daily basis, but the full consequences and ramifications are yet to come, said a strategist at the Deutsche Bank.

US stocks crashed on February 24, 2022 with the Dow Jones Industrial Average

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

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Hours after Russian President Vladimir Putin announced military action, it plunged 1.8%. Meanwhile, oil prices rallied with US benchmark West Texas Intermediate Crude

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

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

On Friday, Dow industrials were slightly lower than a year ago after plummeting for most of 2022 and recovering from October lows in early 2023. The S&P 500 fell 7.4% over the past 12 months, while the Nasdaq fell 15.5%, according to Dow Jones market data.

Meanwhile, bonds ended 2022 their worst year on record. Rather than hold up while stocks plummeted, almost every type of bond — from US and European government bonds to high-grade corporate bonds — posted double-digit losses over the past year.

A sharp sell-off in US Treasuries sent yields higher, with the yield on the 2-year note falling

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Increase of 3.67 percentage points for the year while the 10-year return

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

The carnage, particularly in US markets, came as the Federal Reserve aggressively hiked interest rates to calm rising inflation that had accompanied the recovery from the initial COVID shock. A series of hikes began in March last year.

“Regarding the last year since the invasion of Ukraine, most of the last three years’ negative bond yields have fallen during this period,” Deutsche Bank strategist Jim Reid wrote in a note to clients on Friday.

“The war in Ukraine started just weeks before the US led the DM [developed market] global migration cycle. Although the background for the bond sell-off was already in place with the extreme Covid stimulus, it was not until central banks started to rally that the bond dam broke.”

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

Global investors have withdrawn a total of $135 billion from bond funds since February 2022, according to analysts at BofA Global Research, citing data from EPFR Global in a weekly note. Meanwhile, investors have pledged $354 billion in cash since Russia invaded Ukraine. Equity funds saw a total of $40 billion in inflows and gold saw $12 billion outflows, said Michael Hartnett, chief investment strategist at BofA Global Research.

Contrary to what many might have expected, given Europe’s proximity to war, European stocks have outperformed US stocks over the past year as investors divested themselves of US stocks to increase their exposure to international equity markets, albeit keenly posited that European markets could benefit from a weaker dollar.

The MSCI Euro Index

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which tracks the performance of large and mid-cap constituents in 15 developed markets in Europe, rose more than 8% over the past 12 months, according to Dow Jones Market Data, while the MSCI USA fell 7.2%.

“The dollar is up 6.5% against the euro; the European outperformance in local currency is even higher. Of course, the overall outperformance may have more to do with a much higher weighting of technology in the US, which has underperformed due to much higher interest rates and extreme starting valuations,” Reid said.

After rallying for most of 2022, the dollar had fallen against other currencies in recent months as the Federal Reserve talked about making progress in reducing inflationary pressures. However, a spate of hotter-than-expected inflation reports in January helped boost the greenback and reverse the dollar’s losses. The ICE US Dollar Index

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up 3.2% this month to 105.20.

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

Meanwhile, the US benchmark crude oil price ended Friday around 17% below levels recorded just before Russia invaded Ukraine.

“Ironically, given the war in Europe last year, oil has been the worst performer. Even European gas prices are more than 50% lower than a year ago, despite having risen 200% by the end of August,” Reid said.

See: The real impact of the Russian invasion of Ukraine on commodities