This article was originally published in our weekly newsletter.
In light of recent geopolitical events, I want to take a moment to discuss their potential impact on the markets.
My comments are in no way political.
I do not profess to be an expert in politics, constitutional law, war, and so on.
What we research and understand is the market.
I hope that the following is received as politically neutral, yet financially informative.
The markets do not like uncertainty.
People (investors) seem to dislike uncertainty even more.
This is why emotions can get the best of us.
It’s like we can’t help but try to time the market (switch between cash and stocks).
The problem is that we, as individuals, often do not measure “risk” in the same way institutions do.
For example, if war breaks out in the Middle East, how much will that affect a domestic insurance company?
There may not be a lot of correlation between the two.
Last checked, Progressive, Farmers, State Farm, Allstate, and other insurers are not offering auto insurance to those on the other side of the world.
In other words, they may not be affected as much as other companies would be affected by these geopolitical events.
Portfolio context is essential.
Understanding what is in your portfolio and how it may react to certain situations can help bridle emotions.
With that said, let’s look at the market as a whole and understand how geopolitical events can affect larger indexes like the S&P 500.
Below is a list of geopolitical events, not just wars, and what happened in the market at that time:
Market Impact: Approx. –26%
Duration of Drop: Roughly 2 weeks (May 10 to late May 1940)
Notes: Global panic over Axis expansion led to sharp equity sell-offs.
Market Impact: Approx. –17%
Duration: Drop extended over ~5 months, bottoming in April 1942.
Notes: Initial sharp decline; sentiment gradually improved on U.S. wartime mobilization.
Market Impact: Approx. –11%
Duration: Around 2–3 weeks
Notes: Short-lived panic followed by stabilization as the U.S. Market fully recovered within ~2 months.
Market Impact: No significant recorded drop in the market.
Notes: The American market remained relatively stable.
Market Impact: No significant recorded drop in the market.
Notes: A major geopolitical crisis, but overshadowed economically by strong U.S. domestic fundamentals.
Market Impact: Approx. –22.5% (from August to October 1962)
Duration: ~8 weeks peak-to-trough
Notes: The market stabilized quickly once the crisis was resolved. It fully recovered by year-end.
Market Impact: ~2.8% drop intraday
Duration: Recovered losses by the next trading day.
Notes: A brief but sharp dip; markets were reassured by government continuity.
Market Impact: No major S&P drop directly tied to the incident
Notes: The market remained generally bullish (up) through 1964 despite growing conflict in Vietnam.
Market Impact: No significant U.S. market drawdown
Notes: Global tensions, but limited financial contagion.
Market Impact: Market declined moderately during the first half of 1968 (around –8%)
Duration: ~2 months
Notes: More reflective of general Vietnam War fatigue than one event.
Market Impact: Approx. –30.6%
Duration: Roughly 7 months (late 1969 to June 1970)
Notes: Massive railroad bankruptcy contributed to recession fears and a prolonged bear market.
Market Impact: No significant S&P drop
Notes: Tragic, but little effect on U.S. markets.
Market Impact: Approx. –45.7%
Duration: About 23 months (late 1973 to late 1974)
Notes: Combined with the oil embargo and stagflation, one of the worst bear markets in post-WWII history.
Market Impact: No significant impact.
Notes: Limited operation with no lasting investor concern.
Market Impact: Minimal (less than 2% decline)
Notes: No material drawdown associated with this event.
Market Impact: Approx. –17%
Duration: Around 50 trading days (mid-July to October 1990)
Recovery: Fully recovered in ~8 trading days after the war officially began in January 1991.
Market Impact: Approx. –11%
Duration: 6 trading days (Sept 17–21)
Recovery: Full recovery in ~15 trading days
Market Impact: Market actually rose after the invasion began
Performance: S&P 500 gained +26.7% over the following 12 months
Notes: The war’s start removed uncertainty, triggering a rally.
Market Impact: Approx. –24%
Duration: ~8 months (early 2022 to October 2022)
Notes: Decline was more influenced by Fed rate hikes and inflation than the war itself.
Market Impact (average): Approx. –6 to –8%
Duration: ~17 trading days
Recovery: Average recovery within 3 weeks
Notes: Ongoing events have short-term impacts, but typically see fast rebounds.
The average market drop for major events listed above is around -18%.
The average duration of the drop listed above is around four months.
It is important to note that there is a wide range here.
Some drops were as small as -2.8% or so, while others were around -45%.
The range of the duration is anywhere from 1 day to 690 days.
No one knows the future.
No one knows how, when, or if Iran will respond.
The point is that you are prepared for the best outcome, which is that peace is established and the markets grow.
It is also essential to be prepared for the worst.
The worst could be a market crash.
We could also experience inflation if there is a spike in oil prices.
That assumes that Iran blocks the Strait of Hormuz.
There is no “safe” investment.
Cash is subject to inflationary risk.
Lifetime income from a flat-income stream from an annuity is subject to inflationary risk.
Stocks (ETFs & Mutual Funds) are subject to market risk.
This is why a comprehensive and holistic plan is essential (in our opinion).
This is why I believe a portfolio should look beyond stocks and bonds when it comes to diversification.
Diversify your strategies.
Success is not an accident.
It takes thoughtful planning and preparation.
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Investment advisory services are offered through Kedrec, LLC, a Kansas state Registered Investment Advisor. Insurance products and services are offered through its affiliate, Kedrec Legacy, LLC. We are not affiliated with the US government or any governmental agency.
Investing involves risk, including possible loss of principal. No investment strategy can guarantee success, ensure a profit or guarantee against losses. Insurance product guarantees are backed solely by the financial strength and claims-paying ability of the issuing company.
Insurance and annuity products involve fees and charges, including potential surrender penalties. Annuity withdrawals are subject to ordinary income taxes and potentially a 10% federal penalty before age 59-1/2. Life insurance generally requires medical and potentially financial underwriting to qualify for coverage. Optional features and riders may entail additional annual cost. Product and feature availability may vary by state.
Tax, legal and estate planning services are available only to members who purchase the Fresh Wealth Plan Membership level. Tax, legal and estate services provided by our network of tax and legal professionals. Always consult with qualified tax/legal advisors regarding your unique circumstances.
Investment advisory services are offered through Kedrec, LLC, a Kansas state Registered Investment Advisor. Insurance products and services are offered through its affiliate, Kedrec Legacy, LLC. We are not affiliated with the US government or any governmental agency.
Investing involves risk, including possible loss of principal. No investment strategy can guarantee success, ensure a profit or guarantee against losses. Insurance product guarantees are backed solely by the financial strength and claims-paying ability of the issuing company.
Insurance and annuity products involve fees and charges, including potential surrender penalties. Annuity withdrawals are subject to ordinary income taxes and potentially a 10% federal penalty before age 59-1/2. Life insurance generally requires medical and potentially financial underwriting to qualify for coverage. Optional features and riders may entail additional annual cost. Product and feature availability may vary by state.
Tax, legal and estate planning services are available only to members who purchase the Fresh Wealth Plan Membership level. Tax, legal and estate services provided by our network of tax and legal professionals. Always consult with qualified tax/legal advisors regarding your unique circumstances.