EQUITY market research tells us that wars tend not to have lasting effects on stocks. The same goes for major geopolitical shocks. Initial overshoots correct themselves quickly, and investors should aim to sit tight.
This is generally good advice, provided you have a generally diversified portfolio.
A study by LPL Research of 21 geopolitical events – ranging from Pearl Harbor to 9/11 – found that the S&P 500 index on average fell by 1.2 per cent on the first day of the event. It took an average of 22 days from then for the market to hit rock bottom, with an average loss of 5 per cent. This loss was recovered in 47 days.
Another study, by the CFA Institute, showed large-cap US stocks have returned an average of 11.4 per cent in the periods leading up to and during four major wars. This is slightly better than the average return of 10 per cent for large-cap US stocks from 1926 to 2013. Small-cap stocks r…
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