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As Russia-Ukraine conflict weighs on markets, remember 'down days are like buying on sale': CNBC senior correspondent

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Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., February 18, 2022.
Brendan McDermid | Reuters
Key Points
  • Stocks rose Thursday, reversing course from steep losses early in the day after Russian forces launched an attack on Ukraine.
  • "In general, geopolitical events tend to be passing pressure points on markets," says Michael Santoli, CNBC's senior markets commentator.
  • "Big down days are like buying on sale," says Dominic Chu, senior markets correspondent for CNBC.

Stocks had a rocky ride Thursday after Russian forces launched an attack on Ukraine in the early morning local time.

At their low points, the Dow had shed 859 points, while the Nasdaq was down nearly 3.5% and the S&P 500 was down more than 2.6%. But the market changed course in the afternoon, erasing those declines. The Nasdaq ended the day up 3.34%, the S&P gained 1.5%, and the Dow, 0.28%.

Despite the end-of-day gains, the S&P and Nasdaq both closed in correction territory — generally defined as a 10% decline from recent highs.

While these dips can be scary, it's important to keep things in perspective. "In general, geopolitical events tend to be passing pressure points on markets," says Michael Santoli, CNBC's senior markets commentator. "S&P 500 corrections of 10-20% lasting several months are somewhat normal historically, if painful."

Adds Dominic Chu, senior markets correspondent for CNBC: "Over the long term, geopolitical risks tend to resolve themselves and markets recover. It's been true of every shock investors have seen since modern capital markets have been in place."

For long-term investors "who have the ability and means to invest because they won't need the money for months, years, or even decades, big down days are like buying [stocks] on sale," Chu says.

Experts generally recommend against making any wholesale changes to your portfolio based on short-term moves in the stock market. And if you're watching your investments' value shift with the news, it may help to understand why the market is reacting the way that it is.

Here's what's behind the market reaction, according to two senior CNBC market experts.

Geopolitical events 'exacerbate existing market trends'

When conflict breaks out, investors tend to push markets back up soon after. The S&P 500 posted positive returns during World War II, the Korean War, the Vietnam War, and the Gulf War, for instance, according to the CFA Institute. In fact, the 11.4% average annual return during those periods outruns the index's long-term average return.

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However, in the short-term, geopolitical events "often exacerbate existing market trends," Santoli says. In the case of the Russia-Ukraine conflict, riskier tech stocks were already falling this year in part because of market-watchers' "rising expectations of how high the Fed might have to lift interest rates this year," he says. The news out of Russia and Ukraine is just adding pressure to tech stocks.

Sanctions, or commercial and financial penalties that the U.S. and other countries are imposing on Russia, can also affect the economy and the stock market. "The main intersection of a conflict like this and investments is through oil and other commodity prices," Santoli says. "They are up and at levels that will continue to support higher inflation, which is already pressuring U.S. consumers and leading the Federal Reserve to raise interest rates soon."

"Over the long term, geopolitical risks tend to resolve themselves and markets recover.”
Dominic Chu
CNBC senior markets correspondent

This isn't the first time in recent years that oil prices have spiked, Santoli says. "It's worth noting that oil was above $100 a barrel for most of 2011-2014," he says. "Today consumer incomes are much higher, and consumer debt burdens lower, so the impact shouldn't throw our economy off course."

'The futures market can move in extreme fashion'

If you're following the stock market's response to the conflict, you may have noticed that even when the U.S. stock market isn't open, stock prices still fluctuate. U.S. markets open at 9:30 a.m. ET and close at 4:00 p.m. ET. Any stock movement before or after those hours are known as futures.

Futures let you bet on what you think will happen soon. When you enter a futures contract, you are agreeing to buy or sell assets, like stocks, at a predetermined date and price. Investors use futures for speculation based on their anticipation of coming events.

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It's not unusual to see big swings in the futures market based on news that happens outside market hours. "For example, futures on the S&P 500 index dipped just as reports from the Russian invasion of Ukraine started to circulate overnight," says Chu. And that's likely to continue during this conflict, given the 7-hour time difference between Ukraine and New York City, where the two major U.S. stock exchanges are based.

However, what happens in the futures market isn't always an accurate prediction of what will happen during market hours. "The futures market can move in extreme fashion when there aren't as many traders participating at any given time because it doesn't take as much to move markets when there's not as many traders that are active," he says.

'The key is being honest with yourself about your goals'

As Chu pointed out, if you're a long-term investor, the Russia-Ukraine conflict could present a buying opportunity. Sticking to your plan and steadily adding to your portfolio, known as dollar-cost averaging, ensures that you buy more shares during such pullbacks.

"Navigating market volatility is all about knowing your risk appetite and time horizons," says Chu. "For those folks who are very sensitive to market fluctuations, because they're close to retirement or needing the money for college tuition, or putting a down payment on a new house, or car, big down days can put a real dent in those big plans," he says. That's why experts typically recommend keeping money for short-term goals in savings, rather than in the stock market.

"S&P 500 corrections of 10-20% lasting several months are somewhat normal historically, if painful."
Michael Santoli
CNBC senior markets commentator

The amount of time it takes for the stock market to recover is "the big issue," Chu says. "Some conflicts last for days and weeks, others are disruptive for years."

"The key is being honest with yourself about your goals and how immediately you need access to your money."

Investing involves risk, including the loss of principal. This material has been distributed for informational purposes only and may not apply to all investors or investor portfolios. Investments cannot be made in an index. Unmanaged index returns do not reflect any fees, expenses, or sales charges. Carefully consider your investment objective, risk tolerance, and time horizon prior to effecting material changes to your portfolio or asset allocation. 

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