Good morning dear friends,
After many questions about the current mood and situation, we decided to clarify things for you:
What happens to markets during wartime?
How much do they fall?
How long does it take them to recover?
And how long after that are they already at a new peak?
We checked, here are the figures:
The impact of geopolitical events and shocks on the S&P 500 index -
First of all, there is one very important data point that changes the entire picture regarding market behavior!
When we examine market history -
We clearly saw that the decisive question is not just the intensity of the geopolitical event,
but mainly the economic situation the market is in at that moment -
meaning whether the economy itself is in recession or growth.
The difference between growth and recession during a crisis -
The data shows a profound difference in index performance at various timeframes after the initial 'bang':
In situations of economic growth (without recession), the index tends to recover very quickly.
With an average return of +0.5% after one month.
+3.4% after three months.
+6.1% after six months.
And an increase of +9.8% after one year.
In contrast, when the crisis occurs near or within a recession, the picture reverses and declines deepen...
With an average decline of -3.1% after one month.
-6.2% after three months.
-8.4% after six months.
And a drop of -9.8% in the annual summary.
We analyzed key events and their historical impact and brought you several fascinating examples of how the market reacts to different scenarios:
The Yom Kippur War and oil embargo (1973): one of the most severe events, where oil prices quadrupled and the market suffered from stagflation (a state of high inflation combined with lack of growth),
This led to a 41% plunge in one year and an exceptionally long recovery period of over 600 trading days.
The Gulf War (1990): the US was already in a recession when oil surged, leading to a slow recovery that took nearly 190 trading days.
The September 11 attacks (2001): the event occurred during an existing recession combined with the dot-com bubble burst, but surprisingly, the return to track took only about 30 trading days.
The COVID-19 pandemic (2020): despite the rapid recession, massive government stimuli led to a +44% surge in the market, with the return to peak taking approximately 125 trading days.
The Russia-Ukraine War (2022): although the economy was growing, the interest rate hike cycle exacerbated the declines, and the return to track took about 180 trading days.
And on the other hand -
Notable growth events: in the Korean War (1950), the market rose by 11% in a year and by 60% by the end of the war.
In the event of the attack on Pearl Harbor (1941), government wartime spending fueled a bull market that lasted for years, even though it took over 300 trading days to recover from the initial decline.
Now let's move to the data on market recovery speed -
It is interesting to see the duration it took for the index to return to its pre-crisis level in other events:
Events like the Cuban Missile Crisis (1962) or the Boston Marathon bombing (2013) were resolved at record speed, in just 16 to 19 days.
In the Iron Swords War (2023), the market even rose by 10% within three months and recovered within about 25 trading days.
Historical events like 'Black Monday' took over 500 trading days to recover.
While events like the Arab Spring or the Iranian Revolution took between 90 and 130 trading days.
Specific events like the invasion of Crimea, the Suez Crisis, or even the start of World War II (Germany/Poland), showed relatively quick recoveries of a few days to a few weeks.
In summary -
It can be seen that as long as the real economy is strong, the market tends to 'shake off' geopolitical events relatively quickly.
But when economic foundations are shaky, any such event can turn into a rolling snowball.