Would a war be bullish for bearish for stocks?

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mikemikemike
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Would a war be bullish for bearish for stocks?

Post by mikemikemike » Mon Jun 17, 2019 10:54 am

[I don't want to get derailed by a discussion of current events, so let's not speculate about the likelihood of a hot war breaking out.]

I'm trying to understand how a hot war would affect my stock portfolio. Looking back at history, seems mixed in terms of how wars affect US stocks. Curious to hear any insights from the investing geniuses here about how wars (if they were to occur) might affect stocks in the near-term future.

jebmke
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Re: Would a war be bullish for bearish for stocks?

Post by jebmke » Mon Jun 17, 2019 10:56 am

How has it affected them over the last 17-18 years?
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livesoft
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Re: Would a war be bullish for bearish for stocks?

Post by livesoft » Mon Jun 17, 2019 10:59 am

How would we distinguish whether the change in the stock market was from a war or not?

For instance, what if stocks were bearish in the absence of a war? Or bullish in the absence of a war? The problem is that if there was a war we could attribute lots of things to the war that probably should not be attributed to the war.
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mikemikemike
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Re: Would a war be bullish for bearish for stocks?

Post by mikemikemike » Mon Jun 17, 2019 11:02 am

livesoft wrote:
Mon Jun 17, 2019 10:59 am
How would we distinguish whether the change in the stock market was from a war or not?

For instance, what if stocks were bearish in the absence of a war? Or bullish in the absence of a war? The problem is that if there was a war we could attribute lots of things to the war that probably should not be attributed to the war.
That's an excellent point. I guess I'm imaging two hypothetical but initially identical futures that go forward from today. Thereafter, in one of the futures, the US engages in a new war. In the other, they do not. How would we expect stock returns to differ between these two futures?

[I realize this question can't be answered with certainty. But there could still, imho, be value in making informed guesses.]

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Re: Would a war be bullish for bearish for stocks?

Post by MotoTrojan » Mon Jun 17, 2019 11:03 am

livesoft wrote:
Mon Jun 17, 2019 10:59 am
How would we distinguish whether the change in the stock market was from a war or not?

For instance, what if stocks were bearish in the absence of a war? Or bullish in the absence of a war? The problem is that if there was a war we could attribute lots of things to the war that probably should not be attributed to the war.
How do we know recessions are bearish?

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mikemikemike
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Re: Would a war be bullish for bearish for stocks?

Post by mikemikemike » Mon Jun 17, 2019 11:04 am

jebmke wrote:
Mon Jun 17, 2019 10:56 am
How has it affected them over the last 17-18 years?
This is a good question. This student thesis is the closest I have found to an answer: https://publications.lakeforest.edu/cgi ... niortheses

TLDR; it depends on the lead up to the war.

That seems like a fine academic conclusion, but doesn't tell an investor much that is actionable.

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Re: Would a war be bullish for bearish for stocks?

Post by Valuethinker » Mon Jun 17, 2019 11:08 am

mikemikemike wrote:
Mon Jun 17, 2019 10:54 am
[I don't want to get derailed by a discussion of current events, so let's not speculate about the likelihood of a hot war breaking out.]

I'm trying to understand how a hot war would affect my stock portfolio. Looking back at history, seems mixed in terms of how wars affect US stocks. Curious to hear any insights from the investing geniuses here about how wars (if they were to occur) might affect stocks in the near-term future.
1. A global spike in oil prices would not be bad for the US economy as a whole given its status as almost the world's largest producer.

However US consumer sentiment has a high correlation with gasoline prices. So that would be bad. Could in theory cause a recession.

Most other major world economies would experience negative effects. China Europe Japan in particular.

Regional effects in USA would be pronounced. Texas up. California and East Coast down.

2. It's not so much a war but how well the war goes.

If it looks like a nice easy victory then markets will do well. Operation Desert Storm started the 1990s bull market the day bombing started. As soon as the first Smart Bomb videos were released.

If it looks inconclusive or degenerates into a quagmire then that will not be good for markets although defence stocks will do well.

3. I note that very few wars in modern history have been quick and with clean resolutions.

The tendency is for advanced military powers to underestimate the resourcefulness determination and sophistication of our enemies.

Google US Marine general Paul Van Riper and exercise Millennium Challenge for some ideas on that.

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Re: Would a war be bullish for bearish for stocks?

Post by rmelvey » Mon Jun 17, 2019 11:28 am

Given that we are already at full employment and with a strong economy, I think a war could cause some upwards pressure on inflation. Not to mention that it would likely be a war that destabilized the oil market. Wars are only really "good" for an economy if you are selling weapons to other countries fighting.

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beyou
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Re: Would a war be bullish for bearish for stocks?

Post by beyou » Mon Jun 17, 2019 11:32 am

The particular adversary would make a big different to investor sentiment.
I think each case is sufficiently unique that any general conclusions you can draw based on limited history would not be so predictive.

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Re: Would a war be bullish for bearish for stocks?

Post by ohai » Mon Jun 17, 2019 11:35 am

What do you mean by "war"? If China starts launching missiles at us, I'm pretty sure stocks will drop. If you don't like the effect of China tariffs, you won't like it when trade goes to zero.

prd1982
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Re: Would a war be bullish for bearish for stocks?

Post by prd1982 » Mon Jun 17, 2019 11:53 am

I cannot believe we are having this discussion.

War, what its good for? Absolutely nothing.

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Re: Would a war be bullish for bearish for stocks?

Post by bengal22 » Mon Jun 17, 2019 12:02 pm

prd1982 wrote:
Mon Jun 17, 2019 11:53 am
I cannot believe we are having this discussion.

War, what its good for? Absolutely nothing.
I agree.
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CommitmentDevice
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Re: Would a war be bullish for bearish for stocks?

Post by CommitmentDevice » Mon Jun 17, 2019 12:04 pm

prd1982 wrote:
Mon Jun 17, 2019 11:53 am
I cannot believe we are having this discussion.

War, what its good for? Absolutely nothing.
+1

bhsince87
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Re: Would a war be bullish for bearish for stocks?

Post by bhsince87 » Mon Jun 17, 2019 12:53 pm

The question is too broad. A lot depends on who, where, why, and how.

Potentially, war is one of the few events that can take your investments down to zero.
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Re: Would a war be bullish for bearish for stocks?

Post by jbranx » Mon Jun 17, 2019 1:07 pm

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