The unprovoked war in Ukraine has been a swift reminder that armed conflicts are not taken lightly by traders or investors. This post is a look at how war impacts the stock market. As history shows, it’s a combination of short-term pain and long-term gains – at least here in the US.
Before I go on, I want to be clear that I am disgusted by Putin’s actions and heartbroken for the people of Ukraine. The information I share is simply a historic look at what we can expect going forward.
How war impact the stock market
The uncertainty of war leads to fear and doubt. Indiscriminate selling ensues, market action turns bearish and our long-term investments, like 401(k) plans and retirement accounts, take a beating. Without any guidance, we are left to wander aimlessly or just sit on the sidelines and watch.
We are currently experienced a sharp dip in the markets. This “darkness before the dawn” often precedes a surge higher. As painful as it is in the short-term, history sides with the bulls. Over the last 100+ years, the stock market has risen sharply following war.
After WWII, markets rose for a bit, suffered through a prolonged correction for a few years and then rose sharply from 1949 until 1966 when a bear market established itself. Gains during that period were stellar.
Following the Vietnam War, inflation and higher gas prices were a problem for about six years. Then the stock market boomed from 1982 until 2000, gaining nearly 500% during that period. That’s an average annual return of more than 27%.
During the war in Afghanistan, the stock market weathered swings in both directions. If you strapped in and stayed for the duration, your accounts are sharply higher. The SPX 500 was up more than 300% during that stretch, an average gain of 15% per year. Historical average annual returns are about half that number.
Hopefully this current war resolves soon. Until then, keep history in mind. We are in a bear market, which is very difficult to trade. A bull market is sure to come again; just be patient and wait it out.