War Shocks Could Drag S&P 500 Down 5% — But Market Typically Roars Back: Here's What Data From 25 Wars, 70 Years Shows
As the major U.S. equity benchmark indices descended on Friday after tensions between Israel and Iran flared up, an assessment of 25 wars over 70 years by LPL Financial sees the S&P 500 index rising in the long term.
What Happened: The Chief Equity Strategist at LPL, Jeff Buchbinder, explained that “The stock market has historically been resilient in the face of geopolitical shocks. LPL looked at 25 wars and other military conflicts going back seven decades. Prior geopolitical events have led to total average drawdowns of only about 5% for the S&P 500.”
The analysis showed the average time for the market to hit its bottom is 19 days, and the average time to fully recover the losses is 42 days over the said period.
Buchbinder further highlighted, “Assuming no imminent recession, which is LPL Research's base-case scenario, history shows that markets are roughly flat over the next month following these geopolitical and economic shocks, but frequently move higher over the following three, six, and 12-month periods. In the case of an event near a recession, such as Iraq's invasion of Kuwait in 1990 and 9/11, stocks have almost always moved lower in the subsequent 3, 6, and 12 months.”
Meanwhile, Ed Yardeni from Yardeni Research suggested that investors should buy the dip. “The S&P 500 is now in the middle of the Middle East,” he said, adding that “We anticipated this development in last Thursday’s QuickTakes and recommended using any selloff in the stock market as a buying opportunity.”
Louis Navellier from Navellier & Associates highlighted the concerns for the market, explaining that “The primary fear is that the fighting spreads to other countries and U.S. military bases in the region.”
Meanwhile, Nigam Arora from the Arora report said that the “Israel Iran war is not a risk.”
Why It Matters: On Thursday evening, Israeli air strikes on Iran commenced, which led the markets down on Friday.
The S&P 500 slipped below 6,000 points after five days, and the exchange-traded fund tracking it, SPDR S&P 500 ETF Trust (NYSE:SPY) declined 1.12% to $597 on Friday.
Meanwhile, the ETF tracking Invesco QQQ Trust, Series 1 (NASDAQ:QQQ) dropped 1.26% to $526.96.
Gold Spot US Dollar was 0.25% down at $3,423.95 per ounce, but close to an all-time high of $3,500.33 per ounce. Meanwhile, the Dollar slipped 0.09% to the 98.10 level.
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