Is War Negative for the Stock Market?
by Bob Stokes
Updated: March 01, 2022
Let's first state the obvious: war is tragic as it brings death and destruction.
But does war make the stock market go down?
Many observers seem to believe so. Here are some Feb. 22 headlines:
- U.S. stocks fall sharply as Russia sends troops into breakaway Ukraine regions (Marketwatch)
- Stocks fall as Russia, Ukraine fears intensify (Reuters)
- The Russia Issue Is Hurting the Stock Market. (Barron's)
The "full scale" Russian invasion of Ukraine began the next evening (Feb. 23), U.S. time.
Certainly, the stock market was headed for a big fall on Thurs., Feb. 24, or so the conventional wisdom goes.
Yes, trading was highly volatile, but by the close on Feb. 24, the NASDAQ Composite was up 3.34%. And, even though the Dow had been lower by 859 points, the senior index managed to close in positive territory by 92 points.
The next day (Fri., Feb. 25), the Dow closed higher by 835 points, even as the war intensified. And, as of this writing intraday on Feb. 28, the S&P 500 went from trading in negative territory to the plus column.
This positive market action in the face of a major global conflict may seem like a head-scratcher to many observers, yet Elliott Wave International has long held that news and events -- no matter how major -- do not determine the stock market's trend.
Indeed, history shows that the stock market behaved differently during four major wars.
These charts and commentary are from Robert Prechter's landmark book, The Socionomic Theory of Finance:
Figure 12 shows a time of war when stock prices (normalized for inflation) rose, then fell; Figure 13 shows a time when they fell, then rose; Figure 14 shows a time when they rose throughout; and Figure 15 shows a time when they fell throughout the hottest half (1965-1975) of a twenty-year conflict. Who wins the war doesn't seem to matter. A group of allies won World War I as stock values reached fourteen-year lows; and nearly the same group of allies won World War II as stock values neared fourteen-year highs.
Many market observers also assume that economic numbers, OPEC's actions, elections, earthquakes and many other events outside of the market cause the stock market to go up or down.
However, just like with war, the evidence shows that this is simply not the case. In other words, events --- whether positive or negative -- do not reverse the established trend that was already underway before the event.
The real driver of stock markets around the globe is the Wave Principle, which reflects the repetitive, hence, predictable patterns of investor psychology.
Get our latest Elliott wave analysis of global stock markets in the Asian-Pacific, Europe -- as well as the U.S. -- by following the link below.
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