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October 2023 Market Brief – Investing in Times of Turmoil

October 2023 Market Brief

Investing in Times of Turmoil

“If you can meet with Triumph and Disaster/And treat those two imposters just the same” – Rudyard Kipling If

Focusing on one’s investment strategy when the world feels like it is descending deeper into chaos and war is challenging. News of violence spreading across multiple regions and the specter of broader Middle Eastern conflict looms large over every discussion and decision. As difficult as it is to separate tragedy and personal feelings of horror and sadness from investment strategy, the data tells us that war is often a non-event for the US stock markets. Below is a table put together by LPL showing how the S&P 500 reacted to historical wars and terrorist events. You can see an average drawdown of only -4.7% and a rather quick recovery of less than 2 months. Obviously, the duration of the war, the size of the conflict, and whether it was a direct attack on the United States influenced how US markets reacted. However, on average over 80+ years, wars and terrorist attacks have been events that the S&P 500 was able to overcome.

We feel that the biggest risk to markets is a sustained oil price shock, with WTI rising and staying above $100 for multiple months. This would have a decisively negative ripple effect throughout the economy including spiking inflation and increasing consumer spending. While the US is a leader in oil production now (and better insulated than during the Arab Oil Embargo of 1973-74), we would not be immune to commodity price spikes. Similar to the first Gulf War in 1990, elevated oil prices can cause more market turmoil than average. As this crisis in the Middle East unfolds, along with the Russian and Ukrainian war continuing, remember to react calmly and that the world has managed to overcome dire situations where all hope seemed lost many times in history. Even if we see protests and unrest, the US has always managed to come out on top and rise above our differences.