From Pearl Harbor to Sept. 11, here's how stocks typically react to the outbreak of wars

By Steve Goldstein

It typically takes 22 days for markets to bottom after a big event

"Buy to the sound of cannons and sell to the sound of trumpets," was the purported quote of Baron Nathan Rothschild during the Napoleonic wars (that he probably did not utter).

That's kind of what oil traders did on Tuesday, with the light sweet crude contract jumping from the low $67 per barrel range when media reports said that Iran was about to send missiles to Israel, up to as high as $71.80, after Iran's mission to the United Nations said it was done for the day.

But the U.S. stock market did not enjoy the ride, with the S&P 500 index SPX at its worst falling 1.4% after Iran sent hundreds of ballistic missiles into Israel, on concerns spiraling Middle Eastern violence could disrupt oil supplies.

Adam Kobeissi, of the Kobeissi Letter, broke down how stocks fared during wars, in a social-media thread. The initial stock-market response, he says, drawing on LPL Financial data, is not great. The total average drawdown in the S&P 500 SPX to these major events is 8.2%.

But looking at it further, what really matters is if the economy is in a recession or not. The average 12-month gain when a war breaks out outside of a recession is 9.2%; the average 12-month loss when a war breaks out during one is 11.5%, he says. With the Atlanta Fed's GDPNow estimating 2.5% third-quarter growth, it's unlikely the U.S. is currently in a recession.

Looking at an even broader range of geopolitical events and stock-market reactions, the market bottom typically takes 22 days, with a recovery time of 47 days.

Of course, Middle East unrest is just one input into a whole host of unknowns right now, that include the economy, interest rates, a U.S. port strike and an election. "Sum this all up and you have a very dynamic situation which largely depends on recession outlook," he says. "Markets that have many different moving parts almost always come with severe volatility."

The markets

U.S. stock index futures (ES00) (NQ00) were pointing to a second day of declines early Wednesday. Oil futures (CL00) gained ground. Gold futures (GC00) eased.

   Key asset performance                                                Last       5d      1m     YTD     1y 
   S&P 500                                                              5708.75    -0.42%  3.25%  19.68%  34.98% 
   Nasdaq Composite                                                     17,910.36  -0.91%  4.52%  19.31%  37.14% 
   10-year Treasury                                                     3.765      -2.30   0.60   -11.59  -97.11 
   Gold                                                                 2673.2     -0.30%  5.81%  29.03%  45.54% 
   Oil                                                                  71.57      2.48%   3.35%  0.34%   -15.24% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

The buzz

Israel in the early hours of Wednesday struck targets in Gaza and Lebanon but has yet to retaliate to Iran.

U.S. vice presidential hopefuls Tim Walz and J.D. Vance sparred Tuesday night in their only debate over 'common sense' economic plans and how to fix housing.

Nike (NKE) withdrew its full-year outlook and postponed its investor day, though fiscal first-quarter earnings topped expectations.

Advisory firm LPL Financial (LPLA) fired its chief executive, Dan Arnold, for what it said were violations of the firm's code of conduct.

Frozen potato producer Lamb Weston (LW) reduced its profit outlook as it unveiled a restructuring plan that includes the closing of a processing facility.

The ADP national employment report is due at 8:15 a.m. Eastern, ahead of Friday's release of September's nonfarm payrolls data.

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The chart

The world economy is growing at trend, according to Oxford Economics, which says the day-to-day flow of economic releases is highly weighted to the industrial side despite it only accounting for a small share of total output. "If, as is usually the case, the industrial and services side of the economy are in sync, this is not too much of a problem. Currently, however, there is a large, persistent divergence between the sectors currently," says Innes McFee, chief global economist. "Our reading of the data is that downside risks to the U.S. expansion are overstated and its economy has settled into a more trend-consistent pace of growth," McFee said, though he said China's situation is deteriorating.

Top tickers

Here were the most active stock-market tickers as of 6 a.m. Eastern.

   Ticker  Security name 
   NVDA    Nvidia 
   TSLA    Tesla 
   NIO     Nio 
   GME     GameStop 
   BABA    Alibaba 
   HOLO    MicroCloud Hologram 
   AAPL    Apple 
   DJT     Trump Media & Technology 
   TSM     Taiwan Semiconductor Manufacturing 
   PLTR    Palantir Technologies 

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-Steve Goldstein

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10-02-24 0637ET

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