Is war really bad for the stock market?


02/24/2022

By:  Jerry Nix | Freewavemaker, LLC

No one can tell you what the stock market is going to do in the next hour, let-a-lone, in the next year or ten years and be 100% accurate.  The market, as many say, “Has a mind of its own.”

As a financial advisor for 42 years of my life I’ve told clients time and time again that 67-70% of the time – regardless of what’s going on in the world – the Stock Market in the U.S. is on an upward trend … and I think if we look at history, we will find this to be true.  It does not matter if we are having inflationary periods, high interest rate periods, minor wars known as “Police Actions” or even full-blown World Wars.  As long as there are people willing to spend the money, they have … the market will eventually pick up on this and trend higher and higher. 

It also seems that the next high is higher than the previous high and the next low is generally not as low as the previous low in the stock market.

Let’s get back to the question of War:

In 1941 the “Fear of war” hit the markets in America and the market trended down as you can see in the graphic from Macrotrends.net below.  However, once we actually were attacked at Pearl Harbor on December 7, 1941 and President Franklin D Roosevelt said, “This is a day that will go down in infamy,” on December 8, 1941 the market started it’s rebound and climbed from about 1,600 to about 2,500 (900 points or 56.25%) by the end of the war in 1945.

The values you see on the above chart was not the DOW JONES INDUSTRIAL AVERAGE values since the Dow actually closed at 112.53 after falling 3.49% that day.  It is likely some values set by Macrotends.net to show total stock market numbers at the time.  There were only 30 stocks in the Dow Jones Industrial Average in 1941 and this was those stocks from 1939 through 07/03/1956:

World War II ended on September 2, 1945 (it actually started September 1, 1939) after we had fought in it since December 8, 1941 – though we did supply the war efforts of our allies since September 1940.

The Dow Jones Industrial Average closed out 1945 at 192.91 points.  So, since we started the war at 112.53, the Dow was up 80.38 points or 71.42% over the period of time we were fighting in the war.

What about the Korean War?

We entered the Korean war on June 7, 1950.  At the end of June that year the Dow Jones Industrial Average was at 2,470.22.  The Korean War ended on July 7, 1953 (well actually it never ended but there has been a cease fire in effect since then) and the Dow closed out at 2,799.07 at the end of July that year.  Therefore, the Dow saw an increase of about 328.85 points over that period of 3 years and 1 month or 13.31%.

This brings me to my war …

The Vietnam Conflict:

Yes, this was a simple conflict and not a war … but what most don’t know is this:

The United States in the Vietnam War began shortly after the end of World War II in an extremely limited capacity and over a period of 20-years escalated peaking in April 1969 with 543,000 American combat troops stationed in Vietnam.  By the conclusion of the United States’ involvement in Vietnam, over 3.1 million Americans had been stationed in Vietnam.

  • May 1961 — Kennedy sends 400 United States Army Special Forces personnel to South Vietnam to train South Vietnamese soldiers following a visit to the country by Vice-President Johnson.  This is when I mark the time of war actually beginning for the United States.
  • March 29, 1973 – The last American combat troops are withdrawn from Vietnam.

So, how did the market perform during these 12 years?

Let’s see:  The table below shows the Dow Jones Industrial Average from the end of 1960 through the end of 1973.  As you can see there were 5 down years and only 9 up years over this 14-year period (up 64% of the time).

YearClosing valueChange in pointsChange in percent
1960615.89−63.47−9.34
1961731.14115.2518.71
1962652.1−79.04−10.81
1963762.95110.8517
1964874.13111.1814.57
1965969.2695.1310.88
1966785.69−183.57−18.94
1967905.11119.4215.2
1968943.7538.644.27
1969800.36−143.39−15.19
1970838.9238.564.82
1971890.251.286.11
19721,020.02129.8214.58
1973850.86−169.16−16.58

While the returns during this war were not great – from 1960 to 1973 we saw an increase of only 234.97 points or 38.15% … it was an increase none-the-less … and not bad considering everything else that went on during that period … assassinations of a president, a person running for president and a civil rights leader … not to mention the revolts and demonstrations against the war as well as the ending of some major racial actions (Jim Crow Laws), high unemployment and inflation fears as well as other detrimental incidents. 

Then what about the “War on Terror” or the “Middle East Conflict” or whatever you want to label it:

For this we will go back to 2001 since that is when most of it started for American Troops.

YearClosing valueChange in pointsChange in percent
200110,021.50−765.35−7.10
20028,341.63−1,679.87−16.76
200310,453.922,112.2925.32
200410,783.01329.093.15
200510,717.50−65.51−0.61
200612,463.151,745.6516.29
200713,264.82801.676.43
20088,776.39−4,488.43−33.84
200910,428.051,651.6618.82
201011,577.511,149.4611.02
201112,217.56640.055.53
201213,104.14886.587.26
201316,576.663,472.5226.5
201417,823.071,246.417.52
201517,425.03−398.04−2.23
201619,762.602,337.5713.42
201724,719.224,956.6225.08
201823,327.46−1,391.76−5.63
201928,538.445,210.9822.34
202030,606.482,068.047.25
202136,338.305,731.8218.73

Here it is … 21 years of Data for the Dow Jones Industrial Average.  Six down years and 15 up years during a war that had many people worried about what is coming next (again up 71% of the time).  The Dow Jones Industrial Average was up some 26,316.80 points or 262.60%.

We’ve talked enough about the Dow Jones Industrial Average …

Probably the worst stock market index to consider for an overall market average would be the DOW which is made up of only 30 companies (30 very large companies) but only 30 none the less.  Let’s take a look at the S&P 500 index on a period-by-period basis during time of war:

  • WWII
    • 1941 = -12.77%
    • 1942 = +19.17%
    • 1943 = +25.06%
    • 1944 = +19.03%
    • 1945 = +35.82%
  • Korean War
    • 1950 = +30.81%
    • 1951 = +23.68%
    • 1952 = +18.15%
  • Vietnam War
    • 1962 = -8.81%
    • 1963 = +22.61%
    • 1964 = +16.42%
    • 1964 = +12.4%
    • 1966 = -9.97%
    • 1967 = +23.8%
    • 1968 = +10.81%
    • 1969 = -8.24%
    • 1970 = +3.56%
    • 1971 = +14.23%
    • 1972 = +18.76%
    • 1973 = -14.31%
  • Middle East or War on Terror
    • 2001 = -11.85%
    • 2002 = -21.97%
    • 2003 = +28.36%
    • 2004 = +10.74%
    • 2005 = +4.83%
    • 2006 = +15.61%
    • 2007 = +5.48%
    • 2008 = -36.55%
    • 2009 = +25.94%
    • 2010 = +14.82%
    • 2011 = +2.1%
    • 2012 = +15.89%
    • 2013 = +32.15%
    • 2014 = +13.52%
    • 2015 = +1.38%
    • 2016 = +11.77%
    • 2017 = +21.64%
    • 2018 = -4.38%
    • 2019 = +31.49%
    • 2020 = +17.88%
    • 2021 = +28.79%

Now if you are like me … I’m not a numbers guy (failed math twice in high school), you may like to see these pictures instead which covers all periods for the Standard & Poor’s 500 going back to 1928.

Going back for the past five years:

Positive Gains for 3 of 5 years (60% of the time).

Going back 10 years:

Positive Gains for 7 of 10 years (70% of the time).

Going back 20 years:

Positive Gains for 16 of 20 years (80% of the time).

Going back 30 years:

Positive Gains for 22 of 30 years (73% of the time).

Going back to 1928 or 94 years:

Positive Gains for 64 of 94 years (68% of the time).  I told you at the start of this article that I’d tell my clients that the market (over the long term) would be up 67-70% of the time, regardless of wars, rumors of war, famines, pestilent, inflation or deflation – as long as people were spending money.  Hopefully this proves it too you.

So, are you going to let this new war between Russia, Ukraine and whoever else gets involved going to scare you out of the market – or are you going to see it as the opportunity that it could be?

Michael Douglas as Gordon Gekko, in the 1987 film Wall Street said, “greed, for lack of a better word, is good.”

Could the same be said for war?  I know that war brings death needlessly and there really are no humane benefits to war … but does it really hurt the stock market long-term?  I think not and hope that you do now.

Good luck and remember when it comes to investing …Think Big Picture and Think Long-term!

2 thoughts on “Is war really bad for the stock market?

  1. Bronwyn Libelle

    “whatever you want to label it” made me laugh out loud. In a weary world sarcasm shines brightly. Thank you for the laughter Jerry. BTW I never thought about it until just this moment, but do the companies specializing in prepping supplies for disasters have public stock? If so, I would be interested to see how well they are doing with armageddon on every front these days. There are so many disasters to pick from these days, both natural and man made. Of course, the worst of which was a certain Russian leader going shirtless on horseback. Dictators should have to hire stylists and people that keep them from excessive monologs. I mean nobody should want to be remembered for being loyal to wearing brightly pattered mumu dresses and jeri curl well after the 80’s, or unkempt shaggy multi-colored beards staring back from a hidey hole. Just no. A stylist please.

    Like

    1. Bronwyn, Thanks for the comments. I laughed at most of it. In the comment you asked “BTW I never thought about it until just this moment, but do the companies specializing in prepping supplies for disasters have public stock?” Unfortunately, while it would be a great idea to invest in these companies, I have not found any public companies doing this business. However, there are public companies that support this business. The article here … https://finance.yahoo.com/news/industries-making-most-money-doomsday-103557775.html … may be a good jumping off point for you. I like your idea and my write an article about it later. For now I am in the process of publishing one on how to make money off other peoples FEAR and GREED. Have a great day, week, month, year and Life!!!

      Like

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