- The stock market has already priced in bad news from the Russia-Ukraine crisis, wrote Morgan Stanley.
- Any relief or de-escalation could lead to a 5% rally, according to analysts led by Mike Wilson.
Even as tensions escalate between Russia and Ukraine, the stock market has already priced in much of the bad news, according to Morgan Stanley.
The commentary came after Russian President Vladimir Putin ordered troops into eastern Ukraine on Monday, triggering retaliatory sanctions by Western nations.
Analysts led by Mike Wilson wrote in a Tuesday research note that uncertainty is "extremely high," but the market has already been adjusting accordingly. Any relief, then, could bring good news to markets.
"If we were to get some signs of a de-escalation in Russia/Ukraine tensions, it seems like a quick 5% rally is not out of the question," analysts predicted.
Wall Street has been grappling with how to approach the Ukraine crisis. Fundstrat's Tom Lee, a well-known market bull, said investors shouldn't sell during the "panic" because stocks will bounce back. Billionaire Mark Cuban said the overseas conflict won't drive investors from the market because there isn't a better alternative for good returns. And Goldman Sachs predicts that the market could see a 6% downturn if there's outright conflict in Ukraine and punitive sanctions for Russia.
Not all price action can be chalked up to the Russia-Ukraine crisis, according to the Morgan Stanley note, because of the current environment of slowing growth and Fed tightening.
Once the Fed begins tightening policy in March, analysts said it'll be important for investors to return to fundamentals — which "should be the main drivers of equity returns over the coming months."
In particular, earnings growth will matter a great deal moving forward, said Morgan Stanley, adding that sales and operating margins are also significant determinants of equity returns.
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