Sometimes it can be hard to see the good. Recent North Korean missile testing, political unrest in Venezuela, and terrorist attacks in Barcelona are only a few of the international events that may cause investors to feel anxious.
Such incidents are concerning to be sure; however, the markets don’t always respond the way you may think. Here’s a look back at how they’ve reacted to past geopolitical events:
- In the six months following the onset of World War I in 1914, the Dow dropped more than 30 percent. That year, the stock market closed for six months (the longest it has ever shut down) because liquidity had all but dried up. But in the following year, it rose more than 88 percent, which remains the highest annual return on record for the Dow Jones Industrial Average. In fact, from the start of the war in 1914 until it ended in late 1918, the Dow was up more than 43 percent in total, or around 8.7 percent annually.
- Hitler invaded Poland on Sept. 1, 1939, which began World War II. When the market opened that Sept. 5, the Dow actually rose almost 10 percent in a single day. When the attack on the U.S. naval base at Pearl Harbor occurred in early December 1941, stocks opened up the following Monday down 2.9 percent; however, it only took a month to regain those losses. From the start of WWII in 1939 until it ended in late 1945, the Dow was up a total of 50 percent, which is more than 7 percent per year.
- The Korean War began in the summer of 1950 when North Korea invaded the South. It ended in the summer of 1953. During that time, the Dow was up an annualized 16 percent, or almost 60 percent in total.
- U.S. troops were sent to Vietnam in March 1965, yet the Dow would finish the remainder of that year up almost 10 percent. By the time the remainder of U.S. troops pulled out of Vietnam in 1973, the stock market was up almost 43 percent, or just under 5 percent per year.
- The Cuban Missile Crisis had the world on the brink of nuclear war in October 1962 – a confrontation that lasted 13 days. Throughout that two-week period, the Dow remained surprisingly calm, losing just 1.2 percent. During the remainder of that year, the Dow gained more than 10 percent.
- President John F. Kennedy was assassinated a little more than a year later in Dallas. The next morning, when the market opened, it was up 4.5 percent. Stocks finished up the following year (1964), with an increase of more than 15 percent.
- Stocks dropped 13.3 percent in the three weeks following the Gulf War in the summer of 1990. From July through October of that year, the S&P 500 dropped 19.9 percent; however, this also coincided with a recession.
- The attacks on U.S. soil on Sept. 11, 2001, saw stocks fall sharply – down almost 15 percent in less than two weeks following the tragedy. The economy was already in the middle of a recession at that point and stocks were still falling from the technology bubble. Within a couple months, however, the stock market made back all of its losses from Sept. 11.
- The U.S. invaded Iraq in March 2003. Stocks rose 2.3 percent the following day and finished the year with a gain of more than 30 percent from that point on, though this followed the end of a brutal bear market.
In the chart below, you can see this mixed record when dealing with international conflicts. Over time though, the upward movement is clear. The best thing investors can do in moments of uncertainly is to stick to their plans and not get emotional.
This quote from Warren Buffett sums it up well:
“Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.”
BRIAN J. MCGILL, II CFP®