As the yearslong Russia-Ukraine war intensifies, experts say some key components of the modern economy could be at risk, and markets are still guessing as to what the conflict could bring next.
On Sunday, President Biden gave Ukraine permission to use U.S.-made long-range missiles to strike deep into Russian territory, a move marking a stark reversal from the administration a mere two months before leaving office. Ukraine quickly seized on the newfound permission to strike a facility in the Bryansk region Tuesday using U.S.-made missiles, Russia’s Defense Ministry said. In response, Russian President Vladimir Putin lowered the country’s threshold for using nuclear weapons, a clear warning to the West.
Owing in part to the escalating aggression, all three major indexes fell early Tuesday, with the Dow dropping about 450 points and the S&P 500 dropping 0.5% soon after market open. Yet by the end of the day, markets were mixed, with the Nasdaq jumping 1%, fueled in part by Nvidia earnings, and the S&P notching a 0.3% advance. Meanwhile, the Dow fell about 0.3%, or 120.66 points.
Fueling the market whipsaw was the uncertainty of Russia’s response to Ukraine’s latest strike, economist Aleksandar Tomic, the associate dean for strategy, innovation, and technology at Boston College’s Woods College of Advancing Studies, tells Fortune.
While stocks have been on the upswing in recent weeks since President-elect Donald Trump won the White House, there has been some volatility recently, says Tomic, and geopolitical issues are adding to the uncertainty.
“The Ukrainians did what they did. Now, the question is, what do the Russians do to retaliate?” Tomic says. “And I think what it is, is that nobody knows, so that breeds uncertainty, and then markets react to uncertainty.”
Another way that an escalated conflict in Ukraine could affect markets is through the threat to natural resources that make up semiconductors, which are already facing a shortage, says Usha Haley, an international business professor at Wichita State University. Key components of semiconductors, such as palladium and neon, are found either in Russia or Ukraine, Haley tells Fortune.
“Semiconductors are central to many U.S. industries, so these shortages and resulting production delays will likely have broad economic impact through supply chains and lead to more inflation,” Haley says.
Still, Tomic notes, the risk of the Russia-Ukraine war…
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