March 1, 2022 7:02 AM EST

Just a few days turned the tide of Russia’s invasion of Ukraine—for the world and for Wall Street, but in completely different ways.

Since the invasion began last week, hundreds of people have been killed and more than half a million have fled their homes to seek refuge in other countries. The human toll, already monstrous, will likely get worse still in the days and weeks to come as Russian forces step up their bombardment of Ukrainian cities.

However, Wall Street doesn’t view things with the same concern. Money and profits are what count in the trading rooms of New York City; human suffering not so much.

Over the last week, all-consuming pessimism among investors has quickly given way to sanguine optimism. In short, the fears that the crisis would morph into a global conflict shifted into something far less calamitous. Instead of imminent world-wide annihilation, Wall Street’s money wizards now see the NATO alliance as stronger than ever, and a feeble-looking Russia shunned by much of the world. This has led to a collective forecast that the conflict, while awful, won’t be as bad as previously thought.

“Initially, the invasion was seen as likely a global conflict, but then investors downsized it to a regional one,” says Jack Ablin, chief investment officer at Cresset Capital. “Sentiment perked up a bit since the matter has been reassessed.”

A weird confluence of Wall Street worries

What happened recently in the stock market is worth reviewing. Long before the invasion, Wall Street was already worried about the potential for the Federal Reserve to raise the cost of borrowing later this year. That concern led investors to bail on stocks and sent the S&P 500 index down approximately 8% in the year through Friday. Most of that decline happened long before the Russian invasion started early last week. The Ukraine crisis merely added to the market losses.

“Investors were trying to price in two things at once,” says Art Hogan, chief market strategist at National Securities Corporation.

Put another way, Wall Street stock traders were analyzing the likely effects of war in Europe, plus the impact of possibly higher interest rates. Both factors had the potential, at worst, to destroy corporate profits or, at a minimum, dent them. Working out what would happen was part of what caused last week’s market volatility and sent investors into a fear spiral that reached a peak mid-week.

“It came to a head on Wednesday with a crescendo of selling except for gold and energy,” Hogan says.

The price of Brent crude oil, the European benchmark, rallied well above $100 a barrel for the first time since 2014 on the back of concerns that oil supplies from Russia would get disrupted. Gold jumped 3.9%, to above $1,900 a troy ounce, as investors looked for a safe haven for their money.

Mid-week markets reversal

However, by Thursday, sentiment had switched to risk-on, meaning that investors were willing once again to take bets on so-called risky assets like stocks. In short, their worries about how bad the Fed and the war would be for Wall Street had not materialized. Both previously concerning matters got downgraded in the minds of bankers.

Of course, the matter wasn’t over, as alarming headlines continued breaking. However, the underlying trend was viewed as positive and helped cement the idea that the outlook for the global economy is better than previously expected.

Over the weekend, the western allies, including the U.S., the European Union, the U.K., and others, took the unprecedented step of blocking some Russian banks’ access to the international payment system known as SWIFT. This act will increasingly cripple the country’s economy—as capital cannot flow into Russia as easily. “Rather than go to war, they said let’s choke off the Russian economy,” says Marc Chandler, chief market strategist at currency trader Bannockburn Global Forex.

In the wake of the SWIFT ban, the ruble has plunged to a record low value. It’s now worth less than one U.S. cent. The fall prompted the Russian central bank to more than double its key borrowing rate to 20% in an effort to defend its currency.

It wasn’t just money matters that changed. The weekend seems to have shifted the facts on the ground in Ukraine in a significant way. For now at least, the Russian military’s advance has slowed in the face of fierce resistance, and the two largest cities, Kyiv and Kharkiv, remain under Ukrainian control.

Perhaps the worst news was that Russian President Vladimir Putin announced he’d put his nuclear deterrent forces on high alert. That raised worries that Russia could be prepared to escalate the conflict.

Russia draws NATO closer together

However, calm heads have prevailed; the U.S. did not respond by raising its own nuclear status. “This isn’t chess, it’s poker, and the U.S. called Russia’s bluff,” Chandler says.

Separately, Sweden and Finland indicated that they may wish to join NATO, the Cold War military alliance led by the U.S. Meanwhile, Germany announced it would increase its military spending to 100 billion euros ($112 billion) in this year’s budget. That’s something that several U.S. presidents have demanded, but the largest European economy has failed to oblige until now. Germany said it would also send weapons to Ukraine, ending its long-standing post-Second World War position that it wouldn’t sell arms into war zones.

One consequence of an invigorated NATO will be more forces being stationed in Europe on a quasi permanent basis, Chandler says. In particular, a more united military front may cause other potential adversaries to avoid a conflict.

It’s not likely that the war will end soon. Russian forces are continuing their offensives against Ukraine’s major cities. And it is possible that the fighting could intensify. However, so far the prediction from the stock market is that the conflict won’t extend far outside Ukraine’s borders. Of course, that could change in a trice.

The result so far is that financial markets seem relatively calm, which should give investors a tad of confidence. “Given what was potentially at stake—nuclear war—the market’s response has been amazingly orderly,” Chandler says. “It’s conducive for a better outlook than we had a month ago.”

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