A Dangerous World

With the economic recovery gaining traction, the focus of worry has shifted

By Joseph Lisanti

The U.S. economy appears to be on track, with third-quarter annualized GDP growth revised upward to a torrid 8.2% from last month's 7.2%. Accordingly, stocks are poised to deliver their first annual advance since 1999. But, given recent headlines, is the world too dangerous for a sustained stock market rally?

Iraq remains a war zone more than half a year after President George W. Bush proclaimed the end of major fighting there. Recent bombings in Turkey have added to the list of countries stunned by terrorism. The November 22 explosion of a missile just outside a major hotel in Kabul indicates that things are far from calm in Afghanistan. And the ousting of President Eduard Shevardnadze after opposition members stormed parliament has left Georgia unstable at best.

But at a time of the year when much of the world at least talks of peace, there are some hopeful signs. India and Pakistan have agreed to a ceasefire along their border. Both sides in the Israeli-Palestinian dispute seem ready for another attempt to halt the violence. And North Korea is signaling that multilateral talks on its nuclear weapons program are likely later this month. Skeptics will observe that hopeful signs like these have surfaced in the past, only to fade away.

Forty years ago, the world also seemed too dangerous. Beyond the initial shock of President John F. Kennedy's assassination was the fear that the other shoe would drop. The U.S. and the Soviet Union were almost two decades into a Cold War that had come close to turning hot over missiles in Cuba. No one knew what the future would bring, but people returned to work and resumed producing goods and services. Markets reopened, and economic life continued.

The S&P 500 rose more than 23% in the year after JFK's death. Over the last 40 years, stocks advanced more than 1,400%. As dangerous as the world is, life goes on.

Lisanti is editor of Standard & Poor's weekly investing newsletter, The Outlook

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