Military Conflicts Haven’t Derailed Long-Term Stock Growth

Key takeaways

Market history

Markets, over more than 120 years, have experienced a long-term advance despite war, recession, oil shocks, political assassinations, and much more.

Military conflict

Military conflicts test investors’ resolve to stick to their investment plan, but history suggests these events haven’t derailed the long-term growth of markets.

Long-term focus

While unnerving, geopolitical conflicts shouldn’t change investors’ long-term investment plans, in my view.

History is composed of challenging times. As a global market strategist, my job is to talk about military conflicts and other historic events in the context of stock markets, and to offer some perspective for investors. With that in mind, it’s important to remember that, over more than 120 years, markets have experienced long-term growth despite war, recession, oil shocks, political assassinations, and much more.

While military conflicts test investors’ resolve to stick to their investment plan, history suggests these events have not derailed the long-term growth of financial markets. I implore investors to maintain a long-term perspective.

Stock market returns following geopolitical conflicts

If there’s a factor that impacts market performance, there’s an index to measure it. Geopolitical risk is no exception. The chart below illustrates 11 points in history where we experienced a peak in the Geopolitical Risk Index, and it shows the return of the S&P 500 Index 12 months after that peak. In most cases, the stock market rose significantly in the year following peak geopolitical risk.

Stocks have made significant returns in the 12 months following peak geopolitical risk

Three things for long-term investors to focus on

While military conflicts understandably generate concerns about the potential market impact, I believe long-term investors should focus on three questions:

1. What’s the outlook for the economy?

Ultimately, I believe investors should stay focused on the businesses that are going to harness innovations such as artificial intelligence and robotics, develop treatments for debilitating diseases, evolve the nation’s energy sources, and invent new technologies and industries that aren’t even on the radar. History suggests that innovations — and investment opportunities — will continue irrespective geopolitical difficulties.

2. What’s the expected path of Federal Reserve monetary policy?

For all the focus on geopolitics, I’d argue that monetary policy matters more. The old adage holds true: Don’t fight the Fed. Historically, the economy has been hurt or helped by monetary policy conditions.

3. Does this military conflict change the answer to either of those questions?

Typically, the answer is no, so long as the conflict remains contained or regional. And that can run counter to what some investors might expect. Consider this example: The MSCI Poland Index has been one of the world’s best-performing indices since Russia invaded Ukraine, climbing 54.15% from the day of the invasion on Feb. 24, 2022, through May 2024.¹ That’s not an outcome many investors might have expected in the earlier days of the conflict.

Stick to long-term investing plans

While unnerving, geopolitical conflicts shouldn’t change investors’ long-term investment plans, in my view. History has shown that other factors — economic growth, business innovation, and monetary policy — drive the path of the markets.

—

Originally Posted June 28, 2024

Military conflicts haven’t derailed long-term stock growth by Invesco US

Footnotes

• Source: Bloomberg L.P., as of May 31, 2024. Results measured in US dollars. Indexes cannot be purchased directly by investors. Past performance is not a guarantee of future results. The MSCI Poland Index is designed to measure the performance of the large and mid cap segments of the Polish market.  

Important information

NA3668903

Investors should consult a financial professional before making any investment decisions. This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions.

All investing involves risk, including the risk of loss.

Past performance does not guarantee future results.

Investments cannot be made directly in an index.

In general, stock values fluctuate, sometimes widely, in response to activities specific to the company as well as general market, economic and political conditions.

The Consumer Price Index (CPI) measures change in consumer prices as determined by the US Bureau of Labor Statistics. Core CPI excludes food and energy prices while headline CPI includes them.

The S&P 500® Index is a market-capitalization-weighted index of the 500 largest domestic US stocks. The S&P 500 Total Return Index assumes that all cash distributions are reinvested.

The opinions referenced above are those of the author as of June 28, 2024. These comments should not be construed as recommendations, but as an illustration of broader themes. Forward-looking statements are not guarantees of future results. They involve risks, uncertainties and assumptions; there can be no assurance that actual results will not differ materially from expectations.