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Wednesday, March 09, 2022 9:23:44 AM
Why Stocks Hate War
By: Mark Hulbert | March 9, 2022
• It's too early to celebrate the buying opportunity that's coming, and don't try to time the market bottom. You'll probably lose that battle.
Geopolitical crises create great buying opportunities in the stock market.
That’s the good investment news, if there is any, as investors nurse their wounds caused by the Dow Jones Industrial Average booking its first correction in two years and the Nasdaq Composite entering bear market territory.
History teaches us that the market eventually recovers from its post-crisis swoon, often sooner than later. Depending on which past geopolitical crises you focus on, the stock market on average is back its pre-crisis level in six months’ time — and is modestly higher in a year’s time.
The bad news is that this upbeat conclusion is based on an average, and that average glosses over considerable variation from crisis to crisis. In some past cases, the post-crisis buying opportunity didn’t occur until the market was a lot lower than where it stood immediately prior to the crisis.
It therefore would be premature for you to start celebrating on the grounds that we’re in the middle of yet another geopolitical crisis that should create yet another great buying opportunity.
These observations are occasioned by the attitude many are taking to the stock market’s Ukraine-induced plunge over the past couple of weeks. One prominent money manager could hardly contain his glee the morning after Russia commenced its full-scale military invasion of Ukraine, issuing a buy signal replete with exclamation points. I know that Wall Street’s job is to be upbeat, but that may be going too far.
To illustrate why this might be premature, I compiled a catalog of the geopolitical crises that appear in one or more of the lists making the rounds on Wall Street. My catalog encompasses events all the way back to Pearl Harbor in 1941. For each of these events, I calculated the DJIA’s biggest drawdown over the subsequent month, quarter, six months, and year.
The accompanying chart shows the biggest loss suffered over these timeframes by any of the crises on my list. For example, the crisis with the worst drawdown over the subsequent month suffered a DJIA decline of 14%. The crisis with the worst drawdown over the subsequent 12 months was a loss of 40%.
TheStreet
These are huge losses, needless to say. To put them in context, consider that the DJIA currently is 1.2% below where it stood on the day Russian invaded Ukraine.
Upon being presented with these statistics, some of my clients immediately suspect that these worst-case losses all occurred in the wake of the Japanese attack on Pearl Harbor. But they’re wrong. The biggest drawdown over the 12 months subsequent to any geopolitical crisis came after the Yom Kippur War in 1973.
That crisis may be particularly relevant to today, since oil’s price spiked in the immediate wake of that war—just as it has this time around as well. And it’s an ominous analogy indeed, since not only was the DJIA at one point over the subsequent year 40% lower than in October 1973, the market didn’t make it back to its October 1973 level until early 1976.
This is why I deem it too early to break open the champagne just yet.
The investment implication of this discussion depends on how confident you are that you will recognize, in real time, when the post-Ukraine-invasion bottom is happening. If you believe you can, then getting out of stocks now might make sense, since chances are good that the market in subsequent weeks and months will be lower—perhaps much lower.
If you’re like the vast majority of us, however, you won’t recognize the bottom in real time. And even if you did, you wouldn’t have the intestinal fortitude to “buy when the blood is in the streets,” to quote the contrarian mantra.
For you the investment implication is to stay the course. You’ll almost certainly end up doing better than trying to get out of stocks now and, in failing to get back in at a lower price, losing out to a simple buy-and-hold approach.
Read Full Story »»»
DiscoverGold
By: Mark Hulbert | March 9, 2022
• It's too early to celebrate the buying opportunity that's coming, and don't try to time the market bottom. You'll probably lose that battle.
Geopolitical crises create great buying opportunities in the stock market.
That’s the good investment news, if there is any, as investors nurse their wounds caused by the Dow Jones Industrial Average booking its first correction in two years and the Nasdaq Composite entering bear market territory.
History teaches us that the market eventually recovers from its post-crisis swoon, often sooner than later. Depending on which past geopolitical crises you focus on, the stock market on average is back its pre-crisis level in six months’ time — and is modestly higher in a year’s time.
The bad news is that this upbeat conclusion is based on an average, and that average glosses over considerable variation from crisis to crisis. In some past cases, the post-crisis buying opportunity didn’t occur until the market was a lot lower than where it stood immediately prior to the crisis.
It therefore would be premature for you to start celebrating on the grounds that we’re in the middle of yet another geopolitical crisis that should create yet another great buying opportunity.
These observations are occasioned by the attitude many are taking to the stock market’s Ukraine-induced plunge over the past couple of weeks. One prominent money manager could hardly contain his glee the morning after Russia commenced its full-scale military invasion of Ukraine, issuing a buy signal replete with exclamation points. I know that Wall Street’s job is to be upbeat, but that may be going too far.
To illustrate why this might be premature, I compiled a catalog of the geopolitical crises that appear in one or more of the lists making the rounds on Wall Street. My catalog encompasses events all the way back to Pearl Harbor in 1941. For each of these events, I calculated the DJIA’s biggest drawdown over the subsequent month, quarter, six months, and year.
The accompanying chart shows the biggest loss suffered over these timeframes by any of the crises on my list. For example, the crisis with the worst drawdown over the subsequent month suffered a DJIA decline of 14%. The crisis with the worst drawdown over the subsequent 12 months was a loss of 40%.
TheStreet
These are huge losses, needless to say. To put them in context, consider that the DJIA currently is 1.2% below where it stood on the day Russian invaded Ukraine.
Upon being presented with these statistics, some of my clients immediately suspect that these worst-case losses all occurred in the wake of the Japanese attack on Pearl Harbor. But they’re wrong. The biggest drawdown over the 12 months subsequent to any geopolitical crisis came after the Yom Kippur War in 1973.
That crisis may be particularly relevant to today, since oil’s price spiked in the immediate wake of that war—just as it has this time around as well. And it’s an ominous analogy indeed, since not only was the DJIA at one point over the subsequent year 40% lower than in October 1973, the market didn’t make it back to its October 1973 level until early 1976.
This is why I deem it too early to break open the champagne just yet.
The investment implication of this discussion depends on how confident you are that you will recognize, in real time, when the post-Ukraine-invasion bottom is happening. If you believe you can, then getting out of stocks now might make sense, since chances are good that the market in subsequent weeks and months will be lower—perhaps much lower.
If you’re like the vast majority of us, however, you won’t recognize the bottom in real time. And even if you did, you wouldn’t have the intestinal fortitude to “buy when the blood is in the streets,” to quote the contrarian mantra.
For you the investment implication is to stay the course. You’ll almost certainly end up doing better than trying to get out of stocks now and, in failing to get back in at a lower price, losing out to a simple buy-and-hold approach.
Read Full Story »»»
DiscoverGold
Information posted to this board is not meant to suggest any specific action, but to point out the technical signs that can help our readers make their own specific decisions. Caveat emptor!
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