What Happens to Stock Markets During Wars, Terrorism and Geopolitical Events?

The recent invasion of Ukraine is a humanitarian tragedy and we will no doubt be trying to figure out what this means for the Ukrainian people, and all Europeans, over the next few months. The lives and liberty of the Ukrainian people are the most important issue in all of this and, so far, it appears Europe and the West are united in their support of Ukraine.

However, it is only natural in this new reality for us to consider what it might mean for us and our own finances and pensions.

One of the most obvious immediate impacts will be an increase in energy costs given how dependent Europe is on gas and other natural resources from Russia, but that perhaps is a cost we must all bear in our efforts to support the people of Ukraine.

The other most obvious question we as financial advisors are asked is what impact wars, terrorism and geopolitical events have on stock markets and pension funds, and what might the next few weeks and months hold?

So far global stock markets have been relatively quiet and seem to have weathered the initial phase of the conflict.

Whilst every war and geopolitical issue is different there are historical patterns which appear when we look back over previous events. The general trend seems to be an initial drop in stock markets followed by a ‘relatively’ quick recovery.

It is also true to say that most financial advisors would most certainly have their clients invested in a wide range of assets classes, and not just the stock market, which would further lessen the impact of market falls on their pension and investment funds.

Let’s look at some examples from previous historical events:

  • During Pearl Harbour, the S&P 500 (US Stock Market) dropped 11% in a single day after the attack. As we all know, the USA declared war on Japan the day after, and on the 11th of December that year, Germany declared war on the USA (with the USA declaring war on Germany the same day). Despite all this turmoil one year later the S&P 500 Index was 15% higher.
  • One of the largest historical stock market falls due to war was Germany’s entry into what was then the Czechoslovakian nation in 1939. The S&P 500 fell by 20% during the following 22 trading days. One year later the market was up almost 19%.

Other events show similar patterns:

Stock Market Reaction to Wars & Terrorism / S&P 500 US Stock Market Index

Event Stock Market Drop in Total Number of Days Falling Number of Days to Recover
Iraq Invasion of Kuwait in 1990 -17% 71 days 189 days
USA Terrorist Attacks in 2001 -12% 11 days 31 days
Cuban Missile Crisis in 1962 -7% 8 days 18 days
North Korea Invades South Korea in 1950 -13% 23 days 182 days

History tells us that armed conflict does have an impact in the short term on stock markets and pension funds, but those markets do recover.

For now, all our thoughts and prayers are with the Ukrainian people, and we hope there is a speedy resolution to the conflict.

If you are worried about how your pension is performing, please get in touch on 01 5267770 or email mcoburn@guardianwealth.ie