War: What is it Good For? Absolutely Nothing

The titles of these reports are always courtesy of well known (and often more obscure) rock songs; but today, a few of the lyrics resonate emotionally from the song War by Edwin Starr:

It ain’t nothing but a heart breaker
War, friend only to the undertaker
Oh, war, it’s an enemy to all mankind
The thought of war blows my mind
War has caused unrest
Within the younger generation
Induction then destruction
Who wants to die? Oh

It’s been an overwhelming two years; with Russia invading Ukraine just as it looked like we might be putting the COVID-19 virus in the rearview mirror. The immediate impact of the war on the U.S. and international economies is via energy markets; but sanctions placed on Russian banking and payment systems have led to significant volatility in currency markets as well. The significant flattening of the U.S. yield curve and plunging GDP forecasts for this year’s first quarter already pointed to rising recession risk … a war clearly ups that ante.

What the sentiment tea leaves say

U.S. stock market volatility has exploded over the past couple weeks; yet investors’ positioning—as shown by the Chicago Board Options Exchange (CBOE) equity put/call ratio in the chart below—isn’t reflecting full-blown panic yet. As you can see, despite the uptick this year (reflecting more put purchases relative to call purchases), the current ratio isn’t near alarming levels seen in prior crises—including the 9/11 terrorist attacks, subprime housing bubble, or eruption of the COVID-19 pandemic.

No panic (yet)

Source: Charles Schwab, Bloomberg, as of 3/4/2022.