War and Capital Markets!

We often read headlines relating stock market declines with regional military tensions.  On 28 Aug 2017, North Korea fired a missile that flew over Japan before falling into the Pacific Ocean, which triggered a regional market sell-off where Asian, European and American markets all opened sharply lower, shed 1% roughly.

Mark Ambruster, CFA, published an article in Enterprising Investor (Read more here), examining the capital market performance during times of war.  His data shows that war does not necessarily imply lacklustre returns for US stocks.  Quite the contrary, stocks have outperformed their long-term averages during wars.  Bonds, which are deemed safe harbour during tumultuous times perform below historical averages during periods of wars  See below table for details.

Source: https://blogs.cfainstitute.org/investor/

He is in the opinion that the future direction of capital market is dependent on economic growth, earnings, valuation, interest rates, inflation, and a host of other factors; history suggests that any market decline due to war should be short-lived.

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