{"id":493361,"date":"2021-10-30T04:34:35","date_gmt":"2021-10-30T08:34:35","guid":{"rendered":"https:\/\/financhill.com\/blog\/?p=493361"},"modified":"2021-10-13T10:59:55","modified_gmt":"2021-10-13T14:59:55","slug":"do-stocks-go-up-during-war-times","status":"publish","type":"post","link":"https:\/\/financhill.com\/blog\/investing\/do-stocks-go-up-during-war-times","title":{"rendered":"Do Stocks Go Up During War Times?"},"content":{"rendered":"

Any declaration of war has global repercussions, regardless of the size and scope of the conflict. No matter who is involved, instability in any area of the world affects every area of the world. However, the extent to which specific financial markets are impacted depends on the details, and historical events don\u2019t necessarily predict market behavior today. <\/span><\/p>\n

Do stocks go up during war times? Some of the factors that influence whether stocks go up during war times include the nations involved, the location of the conflict, when the war occurred, the length of the war, and public support for the war. <\/span><\/p>\n

What Factors Affect How Stocks Are Affected By War?<\/strong><\/h2>\n

Civil wars and internal conflicts such as those that occurred in Sierra Leone (1991-2002) and the Central African Republic in 2013 caused severe disruption in those countries\u2019 economies. However, there was little or no impact on first-world nations like the United States. However, large-scale wars like World War I and World War II did have an effect on the United States\u2019 stock market – even before the US entered those conflicts. <\/span><\/p>\n

The historical period during which a war occurred can be as important as who was involved for those in search of historical patterns to predict future market behavior. For example, at the close of World War II, huge changes were made in the global financial system that increased interdependence. <\/strong><\/span><\/p>\n

Among other key reforms, the International Monetary Fund<\/a> (IMF) was created, and the International Bank for Reconstruction and Development (World Bank) was launched.<\/strong> That means stocks reacted differently to World War I and World War II than they did when later conflicts arose.<\/span><\/p>\n

How popular a war is on the home front can influence the stock market\u2019s reaction. In the United States, low support for the Vietnam War contributed to certain stock market outcomes, as did the strong early support for the Gulf War.<\/span><\/p>\n

Finally, the length of a conflict is an important factor in whether stocks go up during war times. The war in Afghanistan lasted nearly 20 years, during which markets saw both deep plunges and historic highs. The longer a war goes on, the less the market reflects its influence,<\/strong> as the war eventually becomes another element of business-as-usual operations. <\/span><\/p>\n

World War I Stock Market Performance<\/strong><\/h2>\n

Leading up to World War I, the global economy looked nothing like it does today. Each nation operated independently, and most who participated in global trade were on the gold standard. London served as the world\u2019s financial capital when a financial center was necessary, but the related responsibilities paled in comparison to the modern global economy. <\/span><\/p>\n

During this time, nations that imported more than they exported lost gold reserves, which had a negative effect on their economies. The situation typically self-corrected because slow economic conditions prompted greater demand for exports.<\/span><\/p>\n

The assassination of Archduke Franz Ferdinand<\/a>, who was heir to the throne of the Austro-Hungarian empire, is widely considered the moment that World War I began. However, the stock market barely reacted in the moment or in the weeks that followed.<\/strong><\/span><\/p>\n

In fact, it wasn\u2019t until Austria-Hungary responded to Serbia with a declaration of war on July 28, 2014,  that investors were spooked. They began selling stock at a rapid rate. The Dow Jones Industrial Average dropped 30 percent<\/a>, and the market had to close in order to maintain order and stability. <\/span><\/p>\n

The market stayed closed for months, and when it reopened, the Dow rocketed up by 88 percent. From there, the US stock market saw a period of steady growth.<\/strong> By the end of November 1916, US stocks had more than doubled in value. Heavy demand for the supplies needed on the frontlines boosted commodities prices significantly. <\/span><\/p>\n

The US declared war on Germany in 1917, and that sent stocks tumbling<\/a>. That downward trend continued into 1918, at which point the market crept up slowly in fits and starts. It wasn\u2019t until mid-1919 that the US stock market fully recovered on the news that the war was over and the Versailles Treaty signed. <\/span><\/p>\n

World War I disrupted the delicate balance of global trade, and many nations saw their debt increase significantly. In the years between 1913 and 1920, the United Kingdom\u2019s debt increased tenfold, and the United States\u2019 debt went up by eight times.<\/strong> <\/span><\/p>\n

With this sort of debt to manage, large economies couldn\u2019t remain on the gold standard after the war ended<\/a>. Great Britain abandoned the practice in 1931, and the United States followed suit in 1933. <\/span><\/p>\n

World War II Stock Market Performance<\/strong><\/h2>\n

When World War II started in 1939, the United States was just beginning to emerge from the Great Depression.<\/span><\/p>\n

In the earliest days of the war, the Dow increased by 10 percent, giving hope that the geopolitical environment would put an end to difficult economic times.<\/strong> However, after that initial boost, the conflict disrupted international trade and threatened economic recovery. <\/span><\/p>\n

World War II was the most expensive war to date, and it could have further damaged the stock market without rapid action from impacted governments. <\/span><\/p>\n

A number of international cooperative arrangements succeeded in stabilizing and growing the US economy, and by the end of the war in 1945, the Dow was up 50 percent<\/strong>. That represents an average of seven percent annualized growth from 1939 to 1945<\/a> – a somewhat unexpected gain given economic conditions.<\/span><\/p>\n

Korean War Stock Market Performance<\/strong><\/h2>\n

North Korea invaded South Korea in 1950, launching the Korean War. <\/span><\/p>\n

The conflict came as something of a shock to US investors, as the move was wholly unexpected. On the first trading day after North Korea\u2019s attack, the Dow dropped by 4.7 percent.<\/strong> <\/span><\/p>\n

Nonetheless, the market recovered within a few months. By the time the war ended in 1953, the Dow was up nearly 60 percent – an annualized growth rate of 16 percent. <\/strong><\/span><\/p>\n

However, that healthy growth didn\u2019t occur in a vacuum. A number of government policies created a complex economic environment that eventually led to stock market growth. For example, President Truman elected not to borrow money to finance the war. Instead, he partnered with Congress to increase corporate, excise, and income taxes in 1950 and 1951. <\/span><\/p>\n

Meanwhile, consumers saw 11 percent inflation in the first six months of the Korean War. The price increases might have gone on much longer had the government not intervened with price controls. The US GDP went up due to government spending on the war, which totaled 14.1 percent of the total GDP in 1953.<\/strong><\/span><\/p>\n

Vietnam War Stock Market Performance<\/strong><\/h2>\n

The Vietnam War might have been one of the most unpopular in United States history, but the stock market grew anyway. <\/span><\/p>\n

From the time US troops entered Vietnam in 1965 to the time the last troops left in 1973, the stock market grew by 43 percent<\/a><\/strong> – an average increase of nearly five percent per year.<\/span><\/p>\n

Though the stock market saw growth from the time the Vietnam War started until its end, those years were not entirely uneventful. For example, the government\u2019s decisions on war funding caused inflation, which set off a mild recession in 1970. <\/strong><\/span><\/p>\n

It is also worth noting that there wasn\u2019t much movement in the market through 1984, at which point there was something of an economic boom. <\/span><\/p>\n

Gulf War Stock Market Performance<\/strong><\/h2>\n

The Gulf War lasted just seven months, from August 2, 1990, through February 28, 1991. Its brevity makes it difficult to separate market changes caused by the conflict from those related to other world events. For example, oil prices spiked during this period, which caused a brief recession<\/a> – an unusual economic state during war time.<\/strong> <\/span><\/p>\n

It\u2019s worth noting that the stock market may have responded differently to the Gulf War than it had to previous wars because of a distinct shift in the US economy. Processing natural resources and manufacturing capital goods were key components of the economy during previous wars, and those sectors saw substantial growth during war time. <\/span><\/p>\n

By the time the Gulf War began, the country was less dependent on that type of industry. Instead, the United States was on a definitive trajectory towards knowledge-based work.<\/strong> In other words, workers tended towards producing information and services rather than producing goods – for example, scientists, physicians, programmers, and engineers. <\/span><\/p>\n

By their nature, knowledge economies don\u2019t experience increased demand during a war, so the economic growth seen in previous wars wasn\u2019t present during the brief Gulf War. <\/span><\/p>\n

Afghanistan War Stock Market Performance<\/strong><\/h2>\n

It\u2019s not entirely possible to measure the impact of the Afghanistan War on the stock market performance due to the sheer length of the conflict.<\/strong> <\/span><\/p>\n

President George W. Bush signed the Authorization for Use of Military Force that launched the war on September 18, 2001, and it didn\u2019t come to an official close until August 30, 2021. <\/span><\/p>\n

Over that 20-year span, the stock market saw periods of steady growth, but there were also two significant crashes – one in 2008 that launched a global financial crisis and another in 2020 when the world faced a crushing pandemic. <\/span><\/p>\n

Both crashes were followed by economic recovery – one slow and one swift – that were essentially unrelated to events in Afghanistan.<\/span><\/p>\n

Industries that saw the largest growth during the first two decades of the 21st century weren\u2019t influenced by the Afghanistan War in any sense. Examples include: <\/span><\/p>\n