The recent invasion of Gaza and Israel by Hamas was certainly horrific. Israel is retaliating with air strikes and missile attacks as well as mounting up forces for what appears to be a major ground incursion into Gaza. Hamas, meanwhile, is continuing to lob missiles into Israel and threatening to execute hostages on live TV. The war in Ukraine continues to slog on and China has its sights set on taking back Taiwan. So, what does all this mean for our financial markets?
I have helped guide clients and their finances through multiple times of geopolitical unrest and war. Sabre rattling’s to assassinations. The thing I have experienced is that these events have little long-term impact on financial markets. A recent example would be when Russia invaded Ukraine, in the days and weeks that followed the S&P 500 Index dropped 7%, but a month later the index rebounded and was trading higher than prior to the invasion. Another one we all remember is 9/11/2001 when terrorists flew planes into the World Trade Center towers and the Pentagon. Trading was halted for three days and when it reopened over the next 11 trading days the S&P 500 dropped 11.6% but was fully recovered 31 days later. Even during World War II, from 1939 to late 1945 the Dow Jones Industrial Average was up 50% or an average of 7% per year during that period.
Geopolitical events and wars cause temporary disruptions in the economy, like oil shortages and higher energy prices. But if oil can’t come from the middle east because of conflict, then, other oil producers in different parts of the world ramp up production to meet demand. We also find that during these times, industries go from producing consumer goods to producing products needed for war. As my old economics professor used to put it, “they go from producing butter to producing guns.” So, you rarely see a drop in employment during these times. If people are working, and earning a paycheck, they will be consumers and the economy will keep chugging along. If the US is going to continue to help Ukraine and Israel, we will have to ramp up defense production. This should create more jobs and help the economy continue to grow.
As we are so fond of saying in the financial services industry, “past performance is not a guarantee of future results”, that is surely the case when dealing with geopolitical events. The human element during these times is so hard to predict. Since we never know when these times will occur or how they will eventually end, it’s important to keep your investments diversified by asset classes and holdings within each asset class. It’s also important to always have an emergency fund, where you can go to get money to cover special needs. If you have these in place, you can ride out any temporary volatility in our financial markets.
These are the opinions of Legacy Wealth Management, LLC and not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice. Mike Berry is a Registered Representative offering securities through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Legacy Wealth Management, LLC and Cambridge are not affiliated. Cambridge does not offer tax advice. Copyright ©2023 Mike Berry. All Rights reserved. Commercial copying, duplication or reproduction is prohibited.
