Global Unrest & the Stock Market
Tragedy has once again struck the Middle East.
The fall of the Afghanistan government and the Taliban’s quick takeover of the country have many Afghans seeking refuge. The images of people—Afghans and citizens of other countries alike—attempting to flee Kabul is heartbreaking enough, but the bombing of those people and our Marines is genuinely tragic.
Countries around the world are now on high alert.
The question is now: Will this global unrest trigger a market correction as investors seek safety on Wall Street?
“With a good perspective on history, we can have a better understanding of the past and present, and thus a clear vision of the future.” -Carlos Slim Helu
Today, let’s consider how the market has responded to historical examples of global unrest. But as we take a closer look at these examples, we need to remember that the stock market is a forward-looking mechanism. In other words, it isn’t focused solely on the current environment; it’s looking ahead and assessing how things will trend in the future.
An excellent example of this was during the summer of 2020. Large and violent protests spread across the U.S. all too often, yet the stock market climbed higher. Optimism surrounding the post-pandemic economic recovery trumped short-term concerns arising from the protests. In fact, the day the protests started, the S&P 500 rallied more than 1%. As the protests spread over the following 3-months, the S&P 500 rose 16.5%. The market was looking to the future, not the present.
In March of 2011, the quest for democracy in Syria took a violent and dramatic turn, as demands for President Assad’s resignation spread across that nation. The violent protests eventually escalated into a full-blown civil war.
By 2013, the situation was dire as Islamists and jihadists added to the Syrian unrest. There were reports of chemical weapons and bombings of civilian neighborhoods. In late August 2013, then-Secretary of State John Kerry stated that it was “undeniable” that chemical weapons were used against Syrian civilians. This announcement sent the S&P 500 plunging nearly 2% in the final week of August 2013.
The confirmation of chemical weapons also led the U.S. and its allies to threaten intervention, but the U.S. didn’t initiate airstrikes in Syria until September 2014. Interestingly, after the U.S. threatened intervention in early September 2013 until the actual airstrikes in September 2014, the S&P 500 climbed more than 20%.
The horrors of chemical weapons being used on Syrian citizens ignited fear and knee-jerk reactions on Wall Street, as many investors fled the stock market or sought out safety in other investments. But the quick anticipation of U.S. intervention calmed some of these fears, and Wall Street started looking forward to a resolution.
It’s important to note that the Syrian civil war hasn’t ended. Since it commenced over a decade ago, more than five million people have sought refuge in nearby countries and throughout the European Union. Turkey was a top destination for many Syrian refugees, with approximately 3.6 million Syrians living in Turkey.
Speaking of Turkey, bouts of tension and violence have plagued the country, much of which came in the wake of the Syrian civil war. In July 2016, several military personnel and Turkish civilians targeted Parliament and attempted to capture the president. Deadly bombings and violence erupted in several of Turkey’s cities. Thankfully, much of the violence was curbed quickly, and more than 8,000 military personnel were charged. Still, hundreds of lives were lost during the attempted coup.
In response to the failed coup in Turkey, the stock market barely budged. The S&P 500 traded sideways to slightly higher from the July 15 attempted coup through the end of that summer.
Syria and Turkey are two recent examples of how Wall Street has responded to violence and global unrest incidents. Because these events remained relatively contained, they had no enduring impact on the market. What we believe to be the best lesson learned from this was aptly stated by Benjamin Graham:
“The individual investor should act consistently as an investor and not as a speculator.” -Ben Graham
The reality is that knee-jerk reactions to current events have long-term consequences. The market’s direction will always follow the economy, and seemingly significant events that have little economic impact may be ignored. To help keep individual investors on track, we advocate financial plans and a long-term perspective—which is particularly useful in these periods of turmoil worldwide.
Give us a call today at Nicollet Investment Management, and we’d be happy to discuss your long-term financial goals and help you develop a plan to achieve them.
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Reference Articles
https://www.bbc.com/news/world-middle-east-26116868
https://www.wsj.com/articles/the-failure-of-the-syrian-revolution-11615485941
https://money.cnn.com/2013/09/03/investing/war-syria-stocks-oil/