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History Shows War Shocks Have a Modest Impact on Equities

Market reactions to dangerous events like Russia’s war in Ukraine tend not to damage stock valuations over the long term.

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After Russia rolled tanks and troops into Ukraine, markets sold off—for half a day. S&P 500 futures tumbled overnight, but by 2:30 p.m. in New York on Feb. 24, the S&P 500 was higher than before military action began. While there’s been volatility, U.S. equities as of March 1 were still up since before the invasion.

A lot of clients at my wealth management firm called and wrote to ask how that could be. The short answer is, this isn’t unusual. Historically, events such as wars, assassinations, and terror attacks are just not that meaningful to the factors that drive markets. These horrific events exact a terrible human toll, as measured in casualties and injuries, human suffering, and refugees. But the immediate reaction to dangerous mass conflicts like the war in Ukraine tends not to affect equity valuations over the long term. What drives equity prices are increased corporate revenue and profit, and the typical geopolitical event isn’t big enough to change those very much. The impact on global gross domestic product is modest in all but a few outlier cases.