MW Trump's 'World War III' warning to Zelensky rattled stocks. Why they quickly recovered.

By Joy Wiltermuth

Markets are reacting like it's 'theater' and a Ukraine-Russia peace deal can still move forward, strategist says

U.S. stocks were largely looking past a heated discussion on Friday between U.S. President Donald Trump and Ukrainian President Volodymyr Zelensky in the Oval Office, which prompted Trump to claim Ukraine was gambling with "World War III."

After an initial dip for stocks and a brief spike in Wall Street's "fear gauge," equities were moving higher - reacting to the exchange as more "theater" from Trump amid hopes that a Ukraine-Russia peace deal could still move forward, said Keith Lerner, co-chief investment officer at Truist Advisory Services, on Friday afternoon.

"Rightly or wrongly," Lerner said, the reaction from U.S. and European stocks suggests that "ultimately a deal still gets done."

Stocks briefly fell after the Trump-Zelensky exchange, which occured during a meeting aimed to further a Ukraine-U.S. minerals deal and to promote a Russia-Ukraine peace deal. Tempers flared, instead, and the meeting was cut short. Yet stocks then turned higher in the afternoon session.

"This is a very emotional time," said Richard Steinberg, chief market strategist at Focus Partners Wealth, who cautioned investors against making any rash moves in the market.

It has been an ugly February for the stock market, as some of the popular "Trump trades" from November's election have faded, consumer sentiment has soured, bitcoin (BTCUSD) and megacap tech stocks MAGS have stumbled and talk of a potential correction in equities has taken hold.

For the month, the S&P 500 SPX was on pace for a 2.4% drop, the Dow Jones Industrial Average DJIA was 2.4% lower and the Nasdaq Composite COMP was down almost 5.1%, according to Dow Jones Market Data.

Earlier this week, Lerner's team downgraded equities to "neutral" from "attractive," on a more mixed outlook for the U.S. economy and forward corporate earnings that have "flatlined" - losing momentum while valuations remain high.

The 10-year Treasury yield BX:TMUBMUSD10Y has dramatically eased back from its recent 4.8% peak, trading at 4.23% on Friday and potentially signaling concerns about the U.S. economy.

-Joy Wiltermuth

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February 28, 2025 15:54 ET (20:54 GMT)

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