Political Unrest & Market Trends: What Can History Tell Us?

At home, folks are protesting in Minnesota against the behavior of immigration agents, and the country as a whole seems divided between folks who like and dislike President Trump. Abroad, Ukraine and Russia are at war, the US arrested Venezuela’s leader, China has threatened reunification with Taiwan, the US is threatening Iran’s leadership, and Gaza is buried under rubble after the Israeli/Palestinian war.   

Despite the protests and wars, the US economy and corporate earnings have continued to grow this year, propelling the stock market to record levels. Historically, this isn’t uncommon. Most selloffs in the wake of war or civil unrest have been short-lived and provided buying opportunities for those with nerves of steel.   

Let’s take a look at some of the conflicts throughout history and how the stock market has  reacted.  

World War II 

The US entered World War II in the days after the bombing of Pearl Harbor on December 7, 1941.  The US stock market fell in the three years prior to the US declaration of war, -5.5% in 1939, -15.3% in 1940, and -17.9% in 1941. But in each of the four years after the US entered the war, the stock market rallied (12.4% in 1942, 19.5% in 1943, 13.8% in 1944, and 30.7% in 1945).   

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Shocking Events 

There have been many sad events in US history, including assassinations, but they haven’t had much impact on stock prices. President John F. Kennedy was assassinated in November 1963, and the market ended that year up 18.9%, and it gained 13.0% in 1964. Rev. Martin Luther King was killed on April 4, 1968, and yet the market gained 7.7%.  

Civil unrest has also failed to keep stocks down for long. There were civil rights marches in the South in 1965, but the S&P 500 ended the year up 9.1%. Anti-Vietnam War protests spanned many years, but some of the largest occurred from 1965 through 1970. And yet the market was up in four of those six years.   There were massive riots in Los Angeles after four police officers were acquitted of beating Rodney King in 1992, and the S&P 500 gained 4.5%. The market ended 2021 up 26.9% after the year began with supporters of President Trump attacking the Capitol after he lost the 2020 presidential election.  

9/11 

If the economy is already in a recession, a war or protests haven't helped matters. Consider September 11, 2001, when terrorists flew planes into the World Trade Center, the Pentagon, and a field in Pennsylvania. The US responded by sending troops into Afghanistan. The attack occurred roughly a year after the Technology bubble burst, leading many small tech companies to file for bankruptcy in the ensuing years and sparking a recession that ran from March 2001 through November 2001.  The S&P 500 fell 10.1% in 2000, 13.0% in 2001, and 23.4% in 2002, only to mount a strong rally in each of the next five years. 

Pandemic of 2020 

Just six years ago, the world shut down due to an unknown, deadly virus. The Covid Pandemic kept us learning and working from our homes, buying hand sanitizer by the case, and learning how to Zoom. Thanks to government subsidies, Internet shopping, and the development of a vaccine, the S&P 500 ended 2020 up 16.3% after recovering from a sharp selloff in February and March.    

The world has experienced numerous periods of uncertainty, and the stock market has continued to climb over the long run. Cool-headed investors, who have stayed the course through market volatility, have historically been rewarded.  

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Authored by WHZ Strategic Wealth Advisors Senior Partner & Chief Investment Officer Laurence Hale. AI may have been used in the research and initial drafting of this piece. Diversification does not assure a profit or protect against loss in declining markets, and diversification cannot guarantee that any objective or goal will be achieved. 

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