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Buy when there's blood on the streets....(really)

May 16, 2022
Elke Brink
Investments

From the beginning of WW2 to its end, the DOW was up more than 50%, over 7% per year. During both combined world wars, the stock market grew 115%. The old saying that its a good idea to buy when there's blood on the street turns out to be quite literally true. Looking back, I think we can be assured that this too shall pass:

  • The biggest drawdown in history due to war was in conjunction with Nazi Germany's entry into what was then the Czechoslovakian nation in 1939, and the attack on France in 1940. The S&P 500 fell by 20.5% and 25.8% respectively during the following 22 trading days. One year after these instances, the market was up almost 19% and 9.2% respectively, eliminating much of the drop.
  • During Pearl Harbor, S&P 500 dropped around 11% in a single day. As we all know, the US declared war on Japan the day after, and on December 11 that year, Germany declared war on the US (with the US declaring war on Germany the same day). Despite all this turmoil, S&P was up 15.3% higher one year later.

During the oil crisis in 1973, S&P 500 fell by more than 17%. This was also followed by the slowest recovery since the second world war. War and conflict bring sudden crashes/volatility, ranging in their degrees. But usually, the recovery is relatively quick and positive. On average, the S&P 500 has been 6.5% in negative territory three months following an armed conflict (either global or smaller), and around 13% positive 12 months after the conflict.

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