Investment Warrior Report Archive
Stocks and War
With tensions running
high about a possible conflict with Iraq, many analysts are concerned
about these events influencing the stock markets in a negative way. Over
the last century, the United States has been involved in 5 major wars.
Just what were the results of the Dow Jones Industrial average in the
one year prior to the onset of hostilities and the results one year
after the beginning of war? Did war make a major difference in the stock
market or was it a non-issue in terms of market results?
There are lessons that can be learned from this historical perspective
that I believe most investors will find surprising! Here are the
(Event /Return for the year before the onset of hostilities / Return in
the one year after the onset of hostilities) Note: Does not include
WWI – 4/2/17 +3.59% / -21.42%
WW2 – 12/7/41 -11.15% / -1.41%
Korean War – 6/25/50 +28.09% / +14.67%
Vietnam War- 8/4/64 +19.33 / +6.14
Gulf War- 1/16/91 -6.82% / +29.52%
Average – 5 Wars +6.61% / +5.5%
Because of the fact that this is only a series of 5 events, the small
difference between the prior year returns and year after returns can be
considered statistically insignificant. An interesting fact is that the
average annual compound return for the DJIA since January 1, 1900 has
been 4.78%. This is actually lower than both the "before and
after" figures in the above chart. This can make us wonder whether
or not war and rumors of war are actually a benefit for the market,
although the number again is still statistically close to the 5 war
average and is probably insignificant as well.
The monthly return both before and after initial involvement in a
conflict were also inconclusive. The 5 war average had a return of
–1.74% in the month before and +1.98% in the month after the start of
hostilities. Again, too small a difference to draw any serious insights.
The conclusion of the matter is that based on the history of the last
103 years, war has not been a significant factor in market performance
both one year before and one year after the onset of hostilities.
NOW MORE THAN
EVER, REMEMBER AND COMMIT TO STRATEGY, PATIENCE, &
Copyright © 2003 Lussenheide Capital