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Investors Started Dialing Down Expectations Long Before Ukraine

The Russian invasion intensifies fears of slowing growth and rising inflation.

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Illustration: Patrik Mollwing

It took inflation hitting highs not seen for decades, and anxiety over the Federal Reserve raising interest rates, but U.S. stocks’ valuations had already come down to pre-pandemic, pre-stimulus levels before Russia’s Ukraine invasion began. Now Wall Street can’t decide what comes next.

While the equity market’s response to the war has been muted so far, that may be because investors had been lowering their expectations for two months. The S&P 500 is down almost 8% in 2022, and the technology-heavy Nasdaq-100 is off 13%. Optimists are already making the case that stocks are trading at a discount in an environment where growth is still strong and corporate America’s profit machine is still humming. Analysts’ earnings estimates for S&P 500 companies haven’t wavered from a solidly higher trajectory. “You want to look at those opportunities where some of the bargains have opened up,” says Emily Roland, co-chief investment strategist at John Hancock Investment Management.