War And Its Market Consequences

There are many ways a battle or war can shape the future of the stock market. History has proven the short term pain often leads to long term gains here in the US.  But it's these moments of fear and doubt that are visible in our actions that spurs a regrettable response - indiscriminate selling.  We're talking here about our long term stock investments, 401K plans and retirement accounts.

 

The worry and fear one feels during uncertain times is palpable.  Without any guidance into the future we are left to wander aimlessly through what can be a treacherous time.  Who knows how a war is going to end or when it will be completed, in the meantime our accounts are taking a beating.

 

But history is on your side if you're taking the side of the bulls.  Over the last 100+ years we have seen the stock market rise sharply following a prolonged war.  Most recently, the war in Afghanistan (2002-2021) saw huge stock market swings but if you strapped in and stayed for the duration your accounts are sharply higher.  The SPX 500 is up more than 300% during that stretch, an average gain of 15% per year.  Pretty amazing, historical average annual returns are about half that number.

 

But there are often pauses or sharp dips in the markets before a big surge happens.  Call it 'the darkness before the dawn'.  After WWII completed the markets rose for a bit and then had a prolonged correction for a few years, then rising sharply from 1949 until around 1966 when a bear market established itself.  Those gains during that period were stellar.  

 

Following the Vietnam War, inflation and higher gas prices were a problem for about six years but then the stock market boomed from 1982 until 2000, nearly 500% gains during that period.  That was an average return of more than 27%.  You just needed to be patient and wait it out.

 

During this current conflict which has yet to include the US in a 'boots on the ground' battle, we see the markets wobble here as the uncertainty and worry start to build.  But if we can remember our history lessons from the past explained above, we know what our next move is (or isn't!).