Geopolitical tensions and wars tend to shake up stock markets around the world, often making investors nervous and markets unpredictable. Prices and global events share a symbiotic relation, intertwining with international conflicts and political instability. Such events cause market volatility, with a sometimes long-term effect.
The Immediate Impact of International Conflict On the Stock Market
Usually, stock price behaviour is immediate and, therefore, Temporal Changes In Water Mass From international conflict. For instance, post the Russian invasion of Ukraine in February 2022, global stock markets witnessed sharp set-backs. The S&P 500 dropped by almost 13 per cent within a few weeks as the market panicked over the uncertainties posed on energy prices, global supply chains, and inflation.
During a similar first week of 4% threshing downward of the S&P 500 in 2003, the U.S. invasion of Iraq caused energy stocks to surge with the soaring oil prices.
The market reaction reflected fears of disruptions to trade, inflationary pressures and the economic implications of the conflict. An initial sell-off due to uneasiness about the possible prolonged instability is highly likely, particularly in sectors that rely heavily on international trade, such as transportation, tourism, and retail.
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Sector-Specific Movements
During wars or international crises, certain sectors experience different levels of impact. For example, energy stocks often benefit due to the rise in oil prices. The 1990 Gulf War led to a 40% surge in oil prices, benefiting energy stocks like ExxonMobil. On the flip side, travel and airline stocks tend to decline. Following the 9/11 attacks, airline stocks dropped by nearly 30%, reflecting the global travel disruption caused by the attacks.
Additionally, the defence sector usually sees a boost. During the Ukraine conflict, for example, companies like Lockheed Martin and Northrop Grumman experienced stock price increases as governments ramped up defence spending.
Long-Term Trends and Market Resilience
While international conflict causes short-term volatility, markets tend to recover over time. Over the long haul, the S&P 500 has delivered an average annual return of about 9.8% since 1928, even though it’s weathered its fair share of geopolitical shocks and turbulent times.
After the 9/11 attacks, the Dow Jones Industrial Average fell by 7.1% in the month following the tragedy but went on to increase by 19% by the end of the year. Similarly, despite the initial market shock from the Ukraine war, the S&P 500 regained most of its losses within 12 months.
The relationship between stock prices and global events is undeniable, especially in times of war and geopolitical unrest. While stock market reactions to war often involve initial declines, history shows that markets are resilient. By understanding the impact of international conflict on stock market movements, investors can make more informed decisions, balancing short-term risks with long-term opportunities.
