Do Wars Cause Market Downturns?



Ryan Gee

Associate Financial Advisor


It is not a surprise that global conflicts are known to create a feeling of uncertainty among investors.  This uncertainty can cause investors to want some level of control by wanting to hold more cash.  But how much of a factor do these events really play in market downturns?

For the sake of analysis, I decided to focus on the US S&P500 as the benchmark for market performance, then looked at the various conflicts over the past 20+ years.  Here is what I found.

US Invasion of Afghanistan:

On September 26, 2001, the US covertly invaded Afghanistan in retaliation for the events of September 11th.  In the days that followed 9/11, the S&P500 fell by 12%, bottoming-out on September 21st.  Then, when the US invaded Afghanistan, the market rallied into the beginning of 2002.  It is important to note that 2001 had already been a challenging year for the markets.  They were still recovering from the dot com crash and the US was in a recession from March to November that year.  Thus, it is really hard to suggest that beyond 9/11 itself, the invasion had any negative affect on the markets.

US Invades Iraq:

On March 20, 2003, The US invaded Iraq in an effort to destroy “weapons of mass destruction” and to remove Saddam Hussein from power.  In the first 10 days of the invasion, the S&P500 fell about 5%, then went on to rally for the rest of the year, and frankly all the way to 2008.  The first quarter of 2003 had been weak, but markets were on the path of recovery until the invasion, which just stalled the recovery for a brief period.

Russia Invades Ukraine:

Russia conducted a full-scale invasion of Ukraine in February 2022. The markets did not really react to the invasion—over the first week, the S&P500 went up by 0.42%. The markets trended upwards until the end of April when interest rate increases began in an effort to combat inflation, which caused the S&P500 to fall for the rest of the year.  A major contributor to the downward movement of the S&P500 was largely influenced by interest rates and inflation, not the Russian invasion of Ukraine.

Israel-Hamas Conflict, 2023:

On October 7, 2023, Hamas militants launched an attack in southern Israel.  By most measures, the S&P500 did not move much that day.  The markets had already had a rough September, and further declines through October were much more a function of mediocre 3rd quarter corporate earnings reports than the conflict in southern Israel and Gaza.  In relation to the historical events noted above, and the fact that we are now more than a month past the initial event in Israel, it is highly unlikely this conflict will have any material effect on the S&P500 in the days ahead.

What can we gather from looking back at past global conflicts and their effects on the markets?  Despite stirring-up news headlines, the answer is to say, very little.  Instead, there are other things that have a more material impact.  Things like quarterly corporate earnings, interest rates, and inflation levels play a much bigger role in market movements.  Therefore, while the emotions of these global conflicts may keep us awake at night, it does not bother our investment portfolios for more than a few days, if at all.

Should you wish to have a more direct conversation about this and your investment portfolio, please feel free to contact your knowledgeable RGF Integrated Wealth Management advisor.



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