We’ve all watched as Hamas, a designated terrorist group (per the U.S. and European Union), launched an appalling, unwarranted, and gut-wrenching attack on Israeli citizens.
For many, real emotions surface and have their place. But for today it may be interesting to see how the last 23 geopolitical events since Pearl Harbor have affected the U.S. markets. Thanks to LPL Research who provided the results. Here are some highlights with all of the results found here.
- The average loss of the S&P 500 Index on the first day was 1.1%, with the worst loss of 5.4% following North Korea’s invasion of South Korea.
- The average total pullback was 4.7%, with the largest being Pearl Harbor at 19.8%.
- On average, it took 19 days for the market to hit bottom after an unexpected event and 42 days to recover.
- Following the surprise attack on Pearl Harbor, the market bottomed in 143 days and took 307 days to recover (both were the worst in their respective categories).
- “Equities have historically held up well during geopolitical shocks, including wars and other military conflicts going back decades, with the average recovery taking roughly two months,” according to LPL.
- What is the biggest impact 12 months out? A recession.
- Reviewing a wider series of potential market shocks, the S&P 500 Index was up an average of 9.2% after one year when a recession did not ensue and down 11.5% when a recession occurred.
- Regarding military events, the 1973 Yom Kippur War led to the OPEC oil embargo, soaring oil prices, and a steep U.S. recession. It was an outlier.
- While the nation’s Strategic Petroleum Reserve is not at full capacity, and today’s oil market is much different than that of the early 1970s.
- Geopolitical dynamics in the Middle East are different, and the U.S. is the world’s leading oil producer.
- For now, investors are betting that the violence will be contained to Israel and Gaza, and the war will have little impact on the U.S. economy.
- But is there too much complacency? Intense diplomatic efforts are underway, but war can take unexpected turns.
- Unfriendly forces may be drawn in, and the risk to oil markets shouldn’t be dismissed.
- Ultimately, when any unexpected incident occurs, the impact on U.S. economic fundamentals will drive markets well past any short-term knee-jerk reaction.
- The fundamentals have been the primary driver since the October 7 attack.
As we know, the Middle East is a volatile spot for many reasons. Hopefully, we’ll see a quick resolution to the conflict!
