What Stocks Go Up During Civil Unrest?

In increasingly uncertain times, it’s only natural for investors to wonder what stocks perform best during periods of civil unrest. The past few years have seen protests degenerate rapidly into riots and political differences turn into violent divides.

Intuitively, these developments would seem to be at odds with the stable, predictable market growth that investors rely on to produce compounding returns over long periods of time.

The reality, however, is a bit less intuitive. Here’s what you need to know about how stocks behave during civil unrest and what assets are usually the safest to hold in trying times.

How Big an Impact Does Civil Unrest Really Have?

The first question to answer is how large the impact of civil unrest on stock markets really is. Luckily, the International Monetary Fund (IMF) has conducted fairly extensive research to answer this question.

Strangely enough, instances of social unrest have, on average, a negligible impact on the performance of the stock market in countries with democratic forms of government. This goes counter to what many investors might expect, as negative news stories and instability are often associated with stock market retreats.

It’s interesting to note that the effect of social unrest does tend to be greater in more authoritarian countries. The IMF found that the stock markets of such countries fell an average of 4 percent within 30 days in response to social unrest events.

A notable example of this occurred in China in 2022, when Chinese stocks dipped in response to a wave of protests against restrictive COVID-19 measures.

The findings on stock markets in free countries track well with prominent examples from America over the last several years. For instance, during the riots that followed the murder of George Floyd in 2020, the S&P 500 had the best 50-day period in its history to date.

Going back a bit further, the tumult that surrounded Donald Trump’s upset electoral victory in 2016 was accompanied by a roughly 1 percent increase in share prices across the NASDAQ and S&P 500.

Though passionate protests continued up to the day of Trump’s inauguration, the stock market remained strong and was largely unaffected.

Interestingly, the market’s resilience to incidents of social unrest can even carry it through massive, historic events. On January 6th, 2021, for instance, American stocks closed higher in spite of the attack on the US Capitol.

Why the Disconnect Between Society & Stock Market?

The simplest explanation for why a country’s stock market can rise or remain stable during periods of deep social uncertainty is that civil unrest in developed democracies rarely lasts long enough to have significant economic impacts.

Since stocks are valued on the basis of future cash flows, an event must fundamentally change the future earnings potential of a company, industry or economy in order to create a long-lasting change in share prices.

This accounts for the sharp disparity between periods of civil unrest and true economic crises. Though protests erupted following the 2008 financial crisis and again against the restrictions and lockdowns that defined the early pandemic era, the market turmoil that accompanied these events was a response to dramatic economic shifts.

In both cases, the market crashed due to perceptions that the forward economic picture could be quite bleak.

What Stocks Are Best in Highly Uncertain Periods?

Needless to say, there are still stocks that may fare better than others during periods of instability.

It’s also worth noting that every period of civil unrest is unique, meaning that they may have differing effects on stocks and other assets.

With that said, what stocks go up during civil unrest? Utility stocks, firearms stocks, and stocks related to law enforcement typically fare well during periods of civil unrest.

One of the best places to put money during periods of uncertainty is in utility stocks. Due to consistent demand and predictable revenues, utility companies are somewhat insulated from the volatility that can send other shares plummeting during uncertain times.

Utilities also tend to pay fairly high dividends, making them a good source of cash flow for investors who are unsure what the economic outlook for more growth-oriented stocks may be.

Firearms stocks also tend to perform quite well when people are worried about social disruptions. Gun sales tend to increase when consumers perceive threats of widespread violence or chaos to be unusually high, thus bolstering revenues and earnings.

In some cases, these increased sales can also be the result of a perception among consumers that restrictive gun laws are apt to be passed to cope with these issues.

This trend has proven itself again relatively recently, as stocks in gun and ammunition makers jumped by 5 percent or more after the attempted assassination of Donald Trump in Pennsylvania.

Closely related to firearms stock are law enforcement stocks, which also tend to benefit from instances of civil unrest due to higher spending on police activity.

Companies that make hardware or software for law enforcement agencies offer reliable revenues from government contracts and can rise when instability forces police departments to spend more on their day-to-day activities.

In more extreme cases, investors may also want to look at gold when massive disruptions occur. Though not caused by civil unrest, the stock market crash that followed the September 11th attacks in 2001 resulted mostly from panic and a sense of instability as opposed to any fundamental economic reasoning.

As such, it’s a good case study of the most extreme response to dramatic instability and uncertainty. In the aftermath of the attacks, stocks fell 14 percent while gold rose 6 percent.

Civil Unrest as a Value Investing Opportunity

In the rare cases where civil unrest does shock stock prices, it can also create buying opportunities for value investors by pushing down the valuations of attractive businesses. Generally, this occurs with individual stocks instead of the broader market.

A minor example of this phenomenon can be found in Target stock. The retailer became a target for organized theft and so-called flash mobs in 2023, contributing to prior concerns about its inventory levels that had weighed on stock prices.

Looting was often attached to protests that spiraled out of control, creating a link between the chain’s troubles and general civil unrest. Last year, the company lost $1 billion to this organized retail theft alone.

Nevertheless, investors who were willing to look past the short-term challenges and buy Target while it was low have been rewarded with significant returns. The stock is up 17.5 percent in the last 12 months, and the company has taken extensive measures to limit organized criminal activity at its stores.

The Bottom Line

Although the volatility surrounding periods of civil unrest may create some opportunities for investors, it rarely has a long-term impact on overall stock market returns.

Generally speaking, the buy-and-hold strategies that have historically produced the best overall market returns still appear to be the best during periods of civil unrest or disruption.

Ultimately, aggregate data and specific examples from the last several years suggest that civil unrest has a minimal impact either positively or negatively on stock prices.

Though there’s still an argument for holding defensive assets like utilities, gold or even firearms and law enforcement stocks in a portfolio, it’s unlikely that civil unrest alone will present most investors with opportunities to match or outperform the broader market.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.