E25: Russian Invasion and the markets

Executive Summary Russian War and the Market

In this episode Tyler breaks down how war has impacted the market since 1940 and what that means for the recent invasion of Ukraine by Russia.

First, we would like to send our thoughts to those impacted by the military action in Eastern Europe and hope for a quick and peaceful solution.

When we explore how the market has been impacted by the war since 1940, what we find is some encouraging news. In every single war around the world since 1940 we find a similar pattern to what we have seen leading up to Russia invading Ukraine. The market has a period of draw down, which is probably because of the extreme uncertainty leading up to the military action. Following the start of the war we see that the S&P 500 is back into positive territory 66.6% of the time just one month later. Furthermore, we see the S&P 500 in positive territory one year later over 80% of the time.

To look at this in context for past wars we can see how quick recoveries took place. Following Pearl Harbor, the market fell 19.8% and took 143 days to hit the bottom, followed by a full recovery in less than a year. The Korean war took 23 days to hit the bottom of 12.9%, full recovery in 82 days. More recent military action shows us similar results, with Iraq’s invasion of Kuwait causing a drawdown of 16.9% and a recovery taking place in 189 days. Finally, when we look at the US Terrorist attacks on 9/11 we see the market taking 11 days to find the bottom of 11.6% and it completely recovering one month later.

While the geo-political situation looks dire and one of the largest oil producing nations in the world has invaded it’s neighbor unprovoked, history shows us that the market tends to bounce back in a relatively short amount of time. This helps us drive home the point that having a long-term investment strategy that lines up with your risk tolerance and risk capacity can help you avoid overreaction when these things take place around the world.

Again, our hearts go out to the Ukrainian people and the atrocities that are taking place in their country.

DISCLAIMER: The foregoing content reflects the opinions of Penobscot Financial Advisors and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security.