Investors have been focused on the Federal Reserve’s imminent interest rate cut to such an extent that they have lost interest in equally important macro trends whose potential reversals will create new and likely profitable investment opportunities.

One of them is the Russia-Ukraine war. The conflict continues to cause death and destruction, but no war lasts forever. Let’s explore the potential developments which could follow a peaceful resolution of the war in Ukraine.

From a macro standpoint, the war in Ukraine is the follow up to the COVID pandemic. As such it has unfolded during an economic period where money printing and supply chain disruptions led to an inflationary spiral and a rapid increase in global interest rates. Inflation now seems under control and the Fed is likely to cut rates at its next meeting September 17-18.

Due to the war, there are many geopolitical threads and micro-threads that make any assessment a difficult web to untangle. Still, from a purely financial standpoint, there are three variables pertaining to the war in Ukraine which are worth considering:

• Defense and military spending;
• The destruction of a significant portion of Ukraine’s infrastructure; and
• The repercussions of the war on the global energy sector.

We expand on these topics further below.

What Would Bring a Peace Agreement?

Perhaps a better question to ask is why would a peace agreement emerge?

The answer is straight forward. Neither Russia nor Ukraine is really getting the upper hand at the moment, a factor which is fluid. Still, their respective treasuries are being drained while the U.S. and the rest of NATO are also spending billions, which they don’t really have since the big players, the U.S., Germany, and the U.K., are all debtor nations.

It would be prohibitively expensive to keep the stalemate going for a truly extended period of time. Therefore, at some point, political and financial realities (think elections, and cutbacks in domestic programs such as Medicare and perhaps even Social Security in the U.S.) will start to exert some influence on the process.

Specifically, as deficits rise, debt increases and economies start to struggle. This raises the possibility that the public will communicate to their leaders, either via the ballot box or perhaps more physical means such as protests and social unrest, that maybe peace would be a good idea.

What Would Peace Look Like?

So, for the sake of argument, let’s stipulate that a peace agreement is eventually reached. Along with the possibility of redrawn borders, potential changes in leadership and emerging new rivalries and alliances, history shows that once the peace process is established, it would involve a great deal of rebuilding, along the lines of The Marshall Plan. This is where the U.S. and the rest of NATO would pour more billions into Ukraine in order to rebuild its shattered energy sector including power grids, nuclear infrastructure, and even cities.

Of course, with foreign aid will come conditions, which history shows will likely favor American, German, and U.K. companies (The Big Three). Moreover, these conditions will require adherence to significant financial administration and implementation. Cue the big banks from The Big Three.

And finally, expect defense companies to benefit as some sort of new alliance, or expansion of NATO emerges, which will require military gear to be stationed in all kinds of new places.

Indeed, largely due to the Russia-Ukraine war, global defense budgets have soared, especially in Europe and the U.S. This trend is a boon for aerospace/defense companies such as industry leader Lockheed Martin (NYSE: LMT), a global behemoth based in the U.S.

As the following chart shows, the U.S. accounts for nearly 40% of global military spending:

Who Wins Big from Peace?

This is not an easy question to answer. But if history is any guide, just about everyone would win, at least for a while. That’s because, especially in this case and due to the already extensive debt held by all participants, central banks would have to restart stimulus, which in turn would juice-up global stock markets.

Among all the potential winners, however, we expect companies that are involved in construction and infrastructure to be huge beneficiaries due to the extensive rebuilding that will be required given the damage inflicted to Ukraine by the Russian aggression.

A potential winner of this rebuilding would be Caterpillar (NYSE: CAT), whose earth moving machinery would be at a premium as the enormous rebuilding process unfolds.

Another potential winner would be Quanta Services (NYSE: PWR), a specialist in building out electrical power grids and related infrastructure. Cement, concrete and building aggregates companies will likely benefit as well. One of them could be Vulcan Materials (NYSE: VMC). In addition, mining and smelting companies such as Southern Copper (NYSE: SCCO) are likely to derive benefits form the emergence of peace in Ukraine.

And last but not least consider Big Oil’s growth after the invasion of Iraq. Back then in the Middle East, and again in Eastern Europe, the need for transportation services arises in the face of a sub-optimally operating supply chain.

Ukraine’s vast natural resources and the need for their repair and development are likely to bring in companies like Exxon Mobil (NYSE: XOM). Defense and banking companies would also benefit, but perhaps to a lesser degree.

It seems logical that peace in Ukraine will eventually emerge, although not before the U.S. presidential election in November.

From a humane standpoint, peace will and should be welcome. From a geopolitical standpoint, it will be a highly complicated and difficult process.

From a financial standpoint, infrastructure, defense, energy, transportation, and financial companies will likely be the biggest winners, although the entire stock market will likely experience a significant rally which will last at least a few months once it becomes clear that peace is within grasp.

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