Should You Invest in Stocks in the Time of War?

Invest in Stocks

We are living in disturbing, confusing times. The raging war in Ukraine is causing casualties and deaths and is compelling millions of people to seek shelter in neighboring countries. Russia’s attack on Ukraine has also spooked out global financial markets. As soon as the military assault began, the S&P 500 dropped and the Nasdaq entered bear market territory. The European stocks, more dependent on Russian energy than their American counterparts, slid deeper, with the FTSE 100 shedding 6.7% and the German and French markets giving up more than 4%. Alarmed by the political uncertainty and the prospects of a nuclear war, investors have rushed to sell their shares. The question is whether investors’ defeatist behavior is justified and whether it is pointless to buy stocks when things are falling apart? Invest in Stocks?

If you believe that the world is at the threshold of a nuclear war, then the answer to these questions is obvious. At Armageddon, when the entire civilization is ending, stock markets would pale into insignificance. But if you trust that the conflict between Russia and Ukraine will be resolved without weapons of mass destruction, then you should buy stocks while they are down. The human history that tends to repeat itself has clearly shown that financial markets rebound after sell-offs crippling them during wars.  Global stock markets bounce back on average in the 10 years following the breakout of war. The market doubled in the 10-year period after World War II. After the Gulf War, from 1990 through 2000, the market climbed almost 500%. If the conflict between Russia and Ukraine reaches a peaceful resolution, the global markets, however deeply they presently sink, will rise again in the next decade.

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Selling stocks now is or to Invest in Stocks, therefore, imprudent. Analysts suggest avoiding panic and sticking to usual strategies: investors should stay the course, follow their plans, and continue to buy and hold index funds. Investors should also bear in mind that not all stocks are brought lower in times of war. Some of them – defense stocks and energy sector – soar. Indeed, since the beginning of Russia’s invasion of Ukraine, shares of Raytheon Technologies, a defense and aerospace conglomerate, have advanced nearly 8%. General Dynamics has added 12%, while Lockheed Martin has increased 18%. Northrop Grumman, an aerospace and defense technology company, has surged by 22%. If the USA and other Western allies continue to arm Ukraine, the shares of these companies will go even higher.

Boosted by growing energy prices, the energy sector, too, has been on the rise. The majority of the best-performing stocks in the S&P 500 so far in 2022 are oil and gas stocks. Among these top performers are Halliburton, Schlumberger, and Occidental Petroleum, all of which have skyrocketed more than 30% since the start of the Russia-Ukraine conflict. With oil predicted to reach the record high of $200 per barrel and with gas already at the record level of $4.181, the cost of energy stocks will continue increasing. 

Those investors who do not own shares in the energy or defense sectors should turn to stocks bound to lose during the war. Coronavirus crushed some stocks, and so will Russia’s assault on Ukraine. Travel and leisure stocks have already been heavily hit: online travel stock Expedia Group, casino operator Las Vegas Sands, and airline stock United Airlines Holdings have been listed as the worst performers in the S&P 500. Bank stocks negatively affected by rumors that the war will force the Federal Reserve to be more conservative in raising interest rates to fight inflation have also tumbled. Fifth Third Bancorp, Signature Bank, and Wells Fargo & Co. that benefit from higher interest rates have dipped particularly low. And analysts predict that as long as Russia persists in attacking Ukraine, travel, leisure, and bank stocks will remain in the red.

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These stocks are, therefore, worth buying in the time of the major military conflict the world is witnessing now. They will gain strength in the future. The markets’ recovery after wars in the past suggests that instead of selling stocks in a panic, investors should be bullish on them now. As has already happened many times before, commodity and stock prices decrease after the war, no matter how high they shoot while military campaigns are in full force. Although the Russia-Ukraine tensions are wreaking havoc on the global markets, they are still ripe with earning opportunities. Invest in losing stocks now and reap handsome rewards from their rebound after Russian troops retreat from Ukraine. 




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