History Shows War Shocks Have a Modest Impact on Equities
Market reactions to dangerous events like Russia’s war in Ukraine tend not to damage stock valuations over the long term.
BusinessWeek, March 2, 2022
Last week, we looked at the period encompassing the 1941 Pearl Harbor attack to the 2021 US withdrawal from Afghanistan to determine how geopolitics impact markets.
That discussion generated more than a little disbelief — it is very counter-intuitive — so perhaps some narrative detail might make it easier to grasp.
While most of these events exact a terrible human toll, they have a tiny impact on global GDP. This is why the effect on corporate revenues and profits is far less significant than how these events affect our psyches.
To put this into a more visual perspective, I had BusinessWeek take the LPL chart we used last week and show the result in bar form (rather than just numerically). The result is the utterly compelling chart you see below:
Markets have proven themselves resilient. My key takeaway from this is:
“The moral is not that you should be complacent about serious events or assume nothing can harm your portfolio, but that you should be cautious about drawing a straight line from the news to turns in the market. Although Wall Street has no shortage of professional commentators on geopolitics, it’s difficult to successfully trade on their forecasts. Markets often stumble on headlines, but soon after these wobbles, they tend to return to whatever the prior trends were.”
The data speaks for itself, but sometimes we need to hear it in a narrative structure to make it more acceptable.
Previously:
How Geopolitics Impacts Markets: 1941-2021 (February 25, 2022)
A Personal Recollection From a Day of Horror (September 12, 2001)
Source:
History Shows War Shocks Have a Modest Impact on Equities
Barrry Ritholtz
BusinessWeek, March 2, 2022
https://bloom.bg/3sy1Mgo
