CNN Business: Russian Invasion Would Bring More Fear to Markets

Article by Julia Horowitz in CNN Business

Uncertainty around the Federal Reserve's plans just drove Wall Street to its worst week since the start of the pandemic.

But it's not the only reason traders are jittery.

Investors are starting to tune in to the situation in Ukraine as fears grow that Russian President Vladimir Putin, who has been amassing troops on the country's border, could order an invasion.

Michael Hewson, chief market analyst at CMC Markets, told me that the "tipping point" was news that the United States and United Kingdom are withdrawing some staff from their embassies.

"I think it's important not to underestimate how big a deal this is," Hewson said. "It suggests there is a real concern that diplomacy alone may not be enough to prevent a Russian incursion into Ukraine."

Surging inflation has forced investors to reconsider how quickly the Fed could raise interest rates this year. That's rattled stock and bond markets, which had become accustomed to rock-bottom rates during the pandemic. The CNN Business Fear & Greed Index finished last week in "fear" territory.

The Fed's course of action remains the main source of anxiety. But Wall Street is worried that an escalation in Ukraine could disrupt the flow of energy supplies to Europe, sending already-elevated prices into the stratosphere.

The market mood is already on the rocks. Instability in Ukraine presents another reason to stress.

Is the stock market a 'superbubble' about to burst?

Jeremy Grantham is not the only high-profile investor to warn that easy money has set off an unsustainable feeding frenzy. But as stocks fall, the latest amped-up admonition from the British money manager is getting lots of attention.

The scoop: In a report published last week, Grantham — who studies market bubbles and was also bearish ahead of the 2000 dot-com crash and the 2008 financial crisis — said US stocks are in their fourth "superbubble" of the past 100 years, and that a massive pullback can "begin at any time."

Grantham said stocks were in an "epic bubble" this time last year. The market wrapped up 2021 near record highs and with its third straight year of gains.

But Grantham's new letter is gaining traction as Wall Street debates what's next for the market now that the Fed is backing away from crisis-era policies.

Grantham blamed the central bank for creating "superbubble" conditions by instituting near-zero interest rates and executing hundreds of billions of dollars in asset purchases. The public, he said, will pay the price.

"One of the main reasons I deplore superbubbles — and resent the Fed and other financial authorities for allowing and facilitating them — is the underrecognized damage that bubbles cause as they deflate and mark down our wealth," he said.

As asset prices soar and personal wealth grows, people start spending accordingly, Grantham continued. That causes real pain when the party ends.

"As bubbles break, they crush most of those dreams and accelerate .......

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