Stock Market Volatility around the time of Conflict.

Posted on 17 September 2013 by Douglas Chadwick

Last week the Telegraph published an article which reported on the movement of the S&P 500 around the times of the last twelve conflicts which occurred during the last thirty years. The original research was carried out by the Deutsche Bank. The conclusions are quite startling and could possibly give an active momentum trader like a Saltydog subscriber a lucrative trend to follow. The research started with the missile strike on Libya in 1986 and concluded with the Iraq war in 2003. In all twelve conflicts the starting point was the date that America entered the conflict. They then looked for the highest market point in the three months preceding the strike date, the rate at the strike point date and the markets position one month after the strike date. In all twelve cases the market on strike date was below the high point in the previous three months although the drop was varied from Bosnia(1%) up to Afghanistan2001(15%). After the strike date the S&P rose in all cases with the Gulf War 1991 showing the highest rise of 18% but the average rise over all the conflicts was 7%. This type of stock market movement was summed up by Nathan Rothschild in 1815 who is said to have coined the maxim “Buy on the sound of cannons, sell on the sound of trumpets.” So the question we have to ask ourselves is whether the conflict in Syria falls into the category above. After all the Americans have not fired a missile and Obama and Putin going face to face is not exactly a conflict. Still the use of Poison Gas munitions and the one hundred thousand dead in Syria obviously makes Syria a serious conflict. However even though it has looked for the last few months that the Americans were certainly going to get involved, it has not happened and now it looks less likely to happen. So it is far from a certainty that this conflict will make the markets perform in a similar fashion to the twelve conflicts which were analysed by the Deutsche Bank. Naturally the last thing we would wish for would be to profit from further suffering, however the markets may still follow the pattern above without further American involvement and if they do, then this is possibly the time to be fully invested in the market. This is the time to follow the Saltydog numbers and see which way the markets move and which sectors move forward. Now is the time to be watching the graphs and be prepared to be active with your investments. As a Saltydog subscriber you can watch the movement of the funds on a weekly basis, not for you the wait for your IFA to call an annual meeting long after the event when the opportunity has passed.