as part of our
All eyes are on Syria - or I should say, Washington, D.C. - as
we determine what our response will be to the tragic use of
No doubt, a protracted military engagement would hamper our
country's efforts to (finally) get our finances in order. In turn,
the ever-fragile economic recovery could be jeopardized. And that,
my friends, has investors on edge.
How else do you explain this headline from the
- "Traders Cautious As Syria Fears Re-emerge"?
Or the fact that Marketwatch.com - an investment-focused
website, mind you - created an entire "Focus on Syria" section at
the top of its homepage, as well as a page dedicated to "live
streaming updates on the conflict in Syria."
be fearful, though? Does Syria genuinely pose a threat to our
Forget what I think on the matter. Instead, let's stick to the
cold, hard facts and see what the data tells us.
(Hint: It's not what you might expect.)
Wall Street Doesn't Care About War
As I've shared before,
well-known uncertainties tend to be priced into the
already. And that's certainly (pun-intended) the case with
The S&P 500 and Dow both dropped about 4% in August overall.
Yet a good chunk of the declines came in the latter part of the
month, once news broke about Syrian President Bashar al-Assad's
In essence, after about a 2% decline, we've already absorbed the
full impact of Syria in the stock market. So any fears about
further declines are completely overblown.
The Wall Street Journal's
Michael J. Casey says, "No U.S. military engagement has had a
measurable impact on non-commodity markets." Indeed!
While that might sound a tad insensitive, it's nevertheless
true. Wall Street doesn't really care about war.
Consider the data…
Birinyi Associates conducted a study on limited U.S. military
interventions overseas (bombing campaigns with no ground troops)
over the last 20 years. The results? In four out of five instances,
the S&P 500 Index sold off for a two-week period prior to any
engagement. Within a month's time, however, the market not only
recovered the losses, it traded even higher.
The lone exception came in 1998, during Operation Infinite Reach
in Afghanistan and Sudan. But the market was also digesting a major
currency crisis in emerging markets. Of course, everyone remembers
the currency crisis -
the military situation.
Meanwhile, Sam Stovall, Chief Equity Strategist at S&P
Capital IQ, conducted a study of 14 military engagements, spanning
70 years. And he arrived at the same conclusion. Stocks initially
sell off, but quickly bounce back to recover any losses.
So chill out. No matter how many times you read an ominous
financial headline about Syria and the stock market.
How to Really Tell When it's Time to Panic
If you're interested in discerning when the stock market is
really in jeopardy, look to movements in U.S. Treasury bond prices
and the dollar. They'll move higher in tandem, as investors seek
safety above all else.
As Casey notes, that's precisely what happened "after the
collapse of Lehman Brothers, during the worst moments of the euro
crisis, and even after Standard & Poor's stripped the U.S. of
its triple-A credit rating."
But right now, it's not happening. The dollar is strengthening,
while U.S. Treasury prices keep falling.
Bottom line: It's highly unlikely that any limited military
engagement in Syria will crash the stock market. Or as Stovall
says, "Some think the impending military response to Syria's use of
chemical weapons will trigger a market shock… If so, it would
probably be one of the most anticipated of unanticipated events in
So treat the dip as a buying opportunity,
a reason to sell. It's the right move to make. And that's a fact
based on the data, not simply my opinion.