With the recent growing tensions between Russia and Ukraine, the potential for additional conflict could always be a possibility. It is necessary for your economic and personal safety that you understand how armed conflicts could potentially impact stocks and some other parts of the economy. In this article, we hope to give you a basic overview of just that so that you can be prepared and make educated decisions if you ever face such a situation.
The Market might not be seriously impacted
In some past geopolitical conflicts, the stocks have largely shrugged off the situation and have not been greatly impacted. For instance, when the 2020 U.S. airstrike killed Iranian general Qasem Soleimani, it hardly had an effect on the markets.
The Market might be volatile: either for the good or for the bad
There have been some situations in which geopolitical conflict has resulted in the market actually growing. For instance, from the start to the end of World War II, the Does was up a total of 50%, more than 7% per year. In contrast, there has also been some situation in which the geopolitical conflict has resulted in a decrease in the market. For example, just recently when Russia invaded Ukraine on February 24, 2022, it had a small negative effect on global markets. In the U.S., the S&P 500 index fell more than 7% in the days and weeks that immediately followed the event, as the U.S. and other nations stepped up severe economic sanctions on Russia, which caused investors to worry about the impact of commodity prices. Afterward, a month later, the market then rebounded.
Ultimately, the main lesson that can be placed from these experiences is that the relationship between geopolitical crisis and market outcomes is not simple. Depending on other external factors of the conflict, the actions that each country takes could affect the Market. Just conflict, in general, should not be a sure indicator for selling or buying stocks or making any other economic decisions.
Conflict in general is a major event in numerous people’s lives and can have catastrophic effects. The stock exchange, however, is not simply black-and-white. To truly understand how a conflict will impact the Stock Exchange, we have to understand the key specific details of what is in fact occurring from the conflict. If numerous weapons and supplies are being mass-produced on a large scale from the conflict, this could potentially increase the market. In contrast, if a blockade from one country to another occurs, this could potentially harm the market. In addition, there could actually be little to no effect of a conflict on the stock exchange if no major events occur during the conflict. Paying attention to these details during the time of a conflict will truly help you predict where a market is going and understand what actions you should take. We hope that through this reading you at least get a basic sense of how to understand the effects of a conflict and make educated economic decisions.