History shows that war shocks have little impact on the stock market
In the long run, the market’s reaction to dangerous events like the Russia-Ukraine war tends not to hurt stock valuations.
Work WeekMarch 2, 2022

The market was sold off for half a day after Russia dumped tanks and troops in Ukraine. S&P 500 futures tumbled overnight, but by 2:30 p.m. in New York on Feb. 24, the S&P 500 was above where it was before the military operation began. Despite the volatility, as of March 1, U.S. stocks were up since before the invasion.

A lot of clients of my wealth management firm are calling in to ask what’s going on. The short answer is that this is not uncommon. Historically, events such as wars, assassinations, and terrorist attacks have had less significance for what drives markets. These horrific events have resulted in horrific human toll, measured in casualties, human suffering and refugees. But in the long run, an immediate response to a dangerous large-scale conflict, such as the war in Ukraine, tends not to affect stock valuations. What drives share prices are rising corporate revenues and profits, and typical geopolitical events aren’t enough to change that. With a few exceptions, the impact on global GDP was modest.

Ryan Detrick, chief market strategist at LPL Financial, looks at 22 major non-financial shocks since the Pearl Harbor attack. While no two things are alike, the stock market has a way of getting rid of them quickly, he said. On average, these events resulted in a loss of about 1.1% a day. The total decline in geopolitical events averaged 4.8% before bottoming out. It usually takes 19.7 days to complete a decline and 43.2 days for a rebound. Even after the US entered World War II after Pearl Harbor, it took only a year and a half for the market to recover. The worst war in human history, the U.S. stock market needed 143 days to bottom and 307 days to move higher.

There are some caveats to this. The United States is a geographically isolated superpower, and the existential threat to its currency and stock markets — aside from nuclear war — is fairly low. Wars in smaller, more vulnerable countries have wildly different outcomes: look at Poland in 1939, Afghanistan in 2001, or Russia in 1906, and you’ll see huge losses in stock, bond or currency markets. Furthermore, we have only seen the beginning of the current conflict. At $1.67 trillion, Russia’s GDP is relatively small, roughly the same as Canada, which has a quarter of the population. Ukraine’s economy is smaller. But as the war escalates, its economic impact could extend far beyond those countries’ borders.

Nonetheless, the resilience of the market remains outstanding. The moral is not that you should be complacent about serious events or assume that nothing can damage your portfolio, but that you should carefully draw a straight line from news to market turns. While Wall Street has no shortage of professional commentators on geopolitics, it is difficult to trade successfully on their forecasts. Markets often stumble across headlines, but soon after these swings, they tend to revert back to their previous trend.

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Ritholtz is the host of the Bloomberg Business Masters Podcast and Chairman and Chief Investment Officer of Ritholtz Wealth Management.