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It’s the economy, stupid “: us stocks in the history of geopolitical crises

The more crisis, the happier? What’s driving the average U.S. stock market up 16% in the 12 months after the geopolitics?

After the events in the Middle East in the United States and Iran, has been busy enough these days, is expected to return, even the occasional tense moment, but the spectators, care about is different, different Angle from the investment, are concerned about the impact on investment, of course, such as oil, gold, stocks, even COINS. What about U.S. stocks? I’ve told you before about the stock market in the United States after several wars, and in the wake of recent events, people have posted online the s&p 500’s rise and fall in the 12 months since the height of the great postwar geopolitical crisis. Let’s take a look.

At first glance, it seems that the more crisis, the happier ah, 12 months after the relevant crisis, the s&p 500 index in the United States rose 16.1% on average, why? What is the relationship between geopolitical crisis and U.S. stocks? In fact, the political and economic context of different crises varies from generation to generation. It’s hard to find a formula here, but we can still sample some of the crises and see whether it was the crisis itself or other factors that had an impact on the U.S. stock market.

Let’s focus on 12 months after the crisis, the market turned down, like the one that dropped 28.8%. You may not know what the crisis is in English: “Yom Kippur War”. In fact, this is the famous Yom Kippur War in history, or the fourth Middle East War. It was a war between Egypt and Syria over the sinai peninsula, which had been occupied by Israel, and the golan heights, which had been fought to regain lost territory. The war, which took place in October 1973, was actually 20 days old. Arab forces made some initial gains, but were quickly countered by Israel, an Egyptian legion was surrounded, and a ceasefire was brokered by the United States (in which kissinger was active).

So the yom kippur war, though it shocked the world at the time and was fought fiercely, soon became clear that the Israeli army was so strong that the war ended quickly. But the Arab countries found it impossible to fight, and in the course of the war they made a move that led to the really big crisis that really affected western and global economies: the first oil shock. The organization of the petroleum exporting countries (Opec) declared an oil embargo and suspended exports, in the context of the long-standing conflict between the oil exporting countries and western oil giants (44.98, 0.00, 0.00%) over suppressed oil prices. The west’s dependence on oil from the Middle East has sent prices soaring, from less than $3 a barrel in 1973 to more than $13.

At that time, the price of oil, let’s feel it, is really a brutal rise. If you imagine today, the price of oil has increased three or four times in three months, what will happen to the global economy and financial markets? Yes, oil was really the lifeblood of industry at that time, and the western economy was hit so hard that it led to a wave of economic crisis. In response to this crisis, Europe and the United States also made a series of measures and reforms, which had a far-reaching impact, and the related economic and financial legacy can be said to affect today. Now that the economy is in a mess, the stock market isn’t doing well.

From 1973 to 1975, the stock market in the United States experienced a decline similar to that of the subsequent subprime crisis. However, there was no super bull market immediately after that.

So what is the direct link between the fall in us stocks after September 11, 2001 and this astonishing terrorist event? In fact, what happened to the stock market after 9/11, as I mentioned before, was a case of quick response, so let’s get a feel for that.

9.11 happens, the nyse was closed for a long time, actually to stock market plunged immediately after opening the are also expected, but the market began to rebound soon, to the United States, after all, despite the disaster caused a great economic loss and personnel, but after all is a one-off event, so soon, with the market rebound back in less than three months. However, it is important to note that this rebound is also a repair to the market’s periodic overreaction. We need to expand the time scale and look at the U.S. economy and capital markets at that time.

From 2000 to 2002, we all know that there was a burst of the Internet bubble in the United States. Although the worst was the implosion, it had a huge impact on the capital market and economy of the United States as a whole. Therefore, the whole stock market of the United States represented by the s&p 500 index was also in the process of absorbing the pain.

At the same time, note that U.S. GDP growth, after the dot-com bubble burst, also fell from a relatively high level and even entered a recession that was later believed to have begun in March 2001.

We know that greenspan had a dirty operation, which was to cut interest rates 11 times in a row, which actually happened during this period. Of course, while the cause of this recession was not 9/11, the series of events that followed, including the uncertainty surrounding the subsequent war in Iraq, were not good for America during the recession. Of course, the recession was short-lived, with the stimulus gradually rolling in and even after the war in Iraq began. Of course, some people believe that the economic policies of this period also laid the groundwork for the subsequent subprime crisis, which is a matter of opinion.

So, in terms of the impact of geopolitics on U.S. stocks and more, we all need to get a grip on this and not indulge in conspiracy theories and political determinism. For example, in the case of the United States and Iran, I see some so-called analysis, just like the magic of the romance of The Three Kingdoms, which makes empty analysis without more multidimensional factors. Even my understanding of modern political crisis and war mode is still limited to the Vietnam war in the last century.

For example, in terms of the impact on the price of oil, in this case if we look at the crisis of 1973, the difference is very clear. On the supply side, oil is now being diversified and even America, with its shale oil, is an important force. In the Middle East, countries are not as united as they used to be, and there are many conflicts between them. In this context, some forces still need to rely on the protection of the United States, so it is difficult to have the severe oil embargo of the past. And from the demand side, now the global economic slowdown, more lack of the kind of oil demand continued to rise economy, although oil is a commodity with financial attributes, but it is more industrial raw materials, lack of sufficient demand support, the price is not able to roar. Of course, since the price of oil plummeted in 2014, there are also investment opportunities for oil prices, but they are more of a trading opportunity, not a big one. Therefore, I have repeatedly suggested that individual investors should be cautious in this regard, and should not get involved in the “great changes in the Middle East”.

In 1992, Bill Clinton ran for President with the slogan “It’s the economy, stupid!” (” it’s the economy, stupid “). In terms of the impact of geopolitics on U.S. stocks, we also find that the core is the economy. You need to calmly analyze whether these events are likely to expand. If there is any impact on the U.S. economy, this is the core element of our thinking.

Robin Bell

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