Wars and the Stockmarket


The casual observer of markets might think stockmarkets should weaken in the face of a “crisis” and headlines appearing in newspapers predicting possible nuclear conflict.


As a student of history, and in particular the impacts of threats of wars and actual wars on the stockmarket I’m not surprised by the lack of reaction.


I have concluded that Stockmarkets dislike not knowing who is going to win and to a lesser extent not knowing how long its going to last. The turning points for markets are once these two things can be predicted with a high level of certainty.

The Rothschild family made a fortune in the Napoleonic era by having an observer at the pivotal battle of Waterloo in 1815 who, once the result was known, was whisked off in their fastest yacht across the channel to provide the news exclusively to the Rothschild family who bought the stockmarket.

The London market duly rose strongly a couple of days later once everyone else found out and the Rothschild family enlarged their fortune.

The First and Second World Wars saw markets achieve their lows during the war once the result was beyond doubt and the end in sight. In WW1 this was in 1917 (when it was apparent that the Germans would run out of men before the allies) and in December 1942 (shortly after Pearl Harbour brought the Americans into the conflict even though war lasted three more years).

Within recent trading memory, I successfully predicted in my Sun Herald column in December 2002 (to 850,000 readers) that markets would bottom most probably in early March 2003.  By that time I expected the Gulf War start date to have been announced (the date prediction allowed for hopeless diplomacy until just before the desert conditions deteriorated to the point where war with tanks would not have been practical).

As it happened markets did bottom on my preferred date of March 6th, a couple of weeks before hostilities commenced.

In this case markets didn’t have to wait for conflict to work out who was going to win. It just needed a start date. It was always going to be a most one-sided battle. I likened it at the time to the equivalent of Boadicea taking on the Roman legion in a set battle.

John Aldersley