News
Investment Strategy · Macro · Markets · War
Owen Lamont, Associate Director of Multi-Asset Research at Wellington's Quantitative Investment Group, analyzed historical data, concluding that war news often has a surprisingly small immediate impact on financial markets, but long-term effects are significant if a country collapses, and conflicts do not reliably create attractive equity buying opportunities.
Lamont's March 2022 analysis, prompted by the Russia/Ukraine crisis, highlights three key historical observations for investors. First, US equity markets have shown surprisingly little reaction to major events like Pearl Harbor (4% drop), President John F. Kennedy's assassination (3% drop), and 9/11 (5% drop), as noted by studies from Cutler, Poterba, and Summers (1989) and Bradford Cornell.
Baker, Bloom, Davis, and Sammon found only 9% of large US stock moves from 1900 to 2020 were linked to "sovereign military and security actions," with even smaller percentages for global equities (3-4%) and US bonds (1%). Second, war can have a significant long-term impact if it leads to a country's collapse, as seen with the Confederate States of America in 1865 and German equities after both World Wars, according to Ferguson (2008).
Third, historical evidence does not support the notion that war creates attractive equity buying opportunities; a 2010 study by Berkman, Jacobsen, and Lee indicated that while US stock prices may appear cheap during crises, this does not translate into high subsequent returns for investors. Lamont's key takeaway is that the current conflict does not clearly signal an especially good time to buy risky assets.
