How do stocks do during war?
As you’ve probably heard, Israel is preparing for a military invasion of Lebanon.
This would be the biggest escalation between the two nation in nearly twenty years.
With the war in the Middle East about to turn a lot worse, I want to show you what you as an investor can expect during these volatile times.
My team and I looked at over 50 major geopolitical and warlike events since the 1950s to see how stocks do during war.
Here’s what we found:
US stocks tend to fall at the outbreak of war… and then almost always recover quickly from these plunges.
Specifically, our research found stocks typically drop around 10% in the days following the start of conflict.
But one year after the onset of the war, they gain 11%, on average.
In other words, if history holds true, we could see a sharp pullback in stocks in the coming days, but it will likely be short-lived.
Let’s look at some examples…
Here’s how the S&P 500 fared during the first Gulf War in the early 1990s.
Stocks fell 20% when the war broke out. Quickly recovered the losses. And then rallied 10% over the next year.
Here’s US stocks a decade later during the second Gulf War…
Again, stocks fell in the beginning, recovered the loses, an rallied 26% over the following 12 months.
US stocks followed this pattern the last time conflict broke out between the Ukraine and Russia in 2014.
You can see the right decision during all these events was to buy stocks , not sell.
When the guns start firing… get out your shopping lists.
Look, I’m not downplaying this war.
It’s going to take a sad toll on millions of people. The last time Israel invaded Lebanon, thousands died, and millions of people were displaced on both sides.
But we’re investors. We have to think how war affects our portfolios.
And the facts are clear: The absolute worst thing you can do is panic and sell. History has shown us time and time again that you want to buy during these times.
So what type of stocks do you buy if war breaks out and the marke pulls back?
The short answer: High-quality businesses. Nvidia (NVDA) and Tesla (TSLA) remain two of my top recommendations.
Stay tuned to learn about others.
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I publish fresh research every M/W/F.
— Stephen McBride, Chief Analyst at RiskHedge
