Quick Takes

February 22, by the Chief Investment Officer Office  

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After a challenging January, the geopolitical newswire continued to fuel investor anxiety in February as escalating tensions between Russia and NATO on the borders of (and now within) Ukraine worsened by the day.

We invite you to read the Quick Take of the Chief Investment Officer Office, which provides a historical perspective on the behavior of equity markets in times of military conflict.

Historical perspective of stocks in times of military conflicts

Against this background, we went back eight decades to observe how stock markets have behaved in times of military conflict. Since these events rarely happen without warning (case in point: Russia's military build-up has been in the news for some time now), we have included in our analysis the few months preceding each of these episodes of heightened tension.

Indeed, we see that it is actually the month before the event that tends to be the worst (positive only 27% of the time with an average return of -2.1%), while the following 3 months usually see gains (positive 73% of the time with an average increase of 3.7%). In addition, we see an average maximum drawdown of about 12%, which is not too far from what the US stock market has experienced since the beginning of the year.

Naturally, these historical trends are no guarantee as to what will happen next, especially since Russia's actions seem to depend on the will of one man. However, they do demonstrate the anticipatory nature of the stock markets, which have certainly discounted many worries since the start of the year.


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