In modern times (post-Second World War), wars have had temporary impacts on markets. The most recent escalation in the Middle East and the ongoing war in Ukraine and Russia are recent examples. The first Gulf War in 1991 is another. Short or long lived, their impacts are likely to be temporary in terms of aggregate demand or supply on corporate fundamentals.
The world tends to adapt to these circumstances surprisingly quickly. The supply chain disruptions for food and energy coming from Russia and Ukraine took a while, but is rarely a discussion point in earnings calls anymore as the war rages on.
Ongoing tensions with AI and computer chips amid U.S.-China tensions are another case in point. In general, we do know that wars are inflationary as they increase spending and reduce productivity overall.
Regionally, however, distortions can have a longer-lasting impact. The vast majority of global conflicts have not occurred in North America and have less impact on the largest economy in the world. Obviously, 9/11 was an exception.
We have seen a lingering growth impact in Southeast Asia and Europe from the Russia-Ukraine war as it has a more direct drive to growth, and inflation influence though Japan has been a standout. For most investors, your portfolio construction should be able to benefit from a geopolitical dislocation rather than fear it or run from it. Think rebalancing versus panic or fear.
For the more idiosyncratic (stock/asset specific) day traders that have far more time-sensitive thinking, it likely matters much more. Think of a company that relies on oil prices (airlines, cruise ships) or flour prices (consumer goods) as examples. For most investors, you should not let it impact your longer-term goals.
For those that want to do something, look at it as an opportunity to rebalance your portfolio, if possible, back towards achieving your long term goals. Think of selling some gold that rallied in anticipation and buy some consumer sensitive equities that sold off in anticipation.
But more likely, rebalance some of the exposures such as emerging markets that might have underperformed in anticipation, and reduce some of the safe haven (strong U.S. dollar).
For the U.S., the impact of 9/11 was much more meaningful, as the war hit U.S. soil. But after the initial shock, weeks, months and years later it had zero impact on markets.
All will know that while there was a technical recession at the time, it was not labelled as a recession until a few years later, and the deflating of the 1990s tech bubble was well underway. If you panicked to sell after the market reopened on Sept. 17, you were losing money two weeks later and underwater for most of the next six months.
It’s hard to isolate how much impact geopolitics have as there are always other factors to consider. In 2022 as Russia invaded Ukraine, the FOMC was embarking on a very aggressive and unprecedented tightening cycle, which likely had much more impact on markets than the war itself.
TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 103.40 points at 24,542.48.
In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.
The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.
The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.
The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.
This report by The Canadian Press was first published Oct. 16, 2024.
TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.
The S&P/TSX composite index was up 205.86 points at 24,508.12.
In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.
The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.
The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.
The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.
This report by The Canadian Press was first published Oct. 11, 2024.
TORONTO – Canada’s main stock index was little changed in late-morning trading as the financial sector fell, but energy and base metal stocks moved higher.
The S&P/TSX composite index was up 0.05 of a point at 24,224.95.
In New York, the Dow Jones industrial average was down 94.31 points at 42,417.69. The S&P 500 index was down 10.91 points at 5,781.13, while the Nasdaq composite was down 29.59 points at 18,262.03.
The Canadian dollar traded for 72.71 cents US compared with 73.05 cents US on Wednesday.
The November crude oil contract was up US$1.69 at US$74.93 per barrel and the November natural gas contract was up a penny at US$2.67 per mmBTU.
The December gold contract was up US$14.70 at US$2,640.70 an ounce and the December copper contract was up two cents at US$4.42 a pound.
This report by The Canadian Press was first published Oct. 10, 2024.
