It can be hard to reconcile the headlines from the most prominent newspapers and the ticker tape. How is it that in the 30 days following Russia’s invasion of Ukraine in February 2022, the S&P 500 total return was +7.6%? How is it that stocks rallied more than 3% in the month following the former President’s indictment at the end of March 2023? How is it that the S&P 500 has rallied both of the two trading days since the worst attack on Israel since the Yom Kippur War 50 years ago?
It isn’t as if the news is otherwise good. The Republicans, holding only a slim majority in the house, recently beheaded themselves. This may stave off impeachment efforts of the current President for corruption for a while that specter still lurks. The price of WTI Crude is up 23.5% in the past 75 trading days, a significant inflationary pressure. Meanwhile, the UAW has been on strike for nearly a month, and almost 5,000 autoworkers have been laid off since it started. The world’s second-largest economy, China, one of the three nuclear powers Paul Tudor Jones recently identified as run by sociopaths, has seen youth unemployment explode to such an extent they no longer publish the data, and they are undergoing a real-estate-related credit crisis. We had one of those ourselves 15 years ago; remember how that turned out for global equities? Bond selloff, exploding government debt…
I could go on and on, but why should I when the drumbeat of bad news can be heard from all corners but Paul Krugman’s who, as shrilly as Kevin Bacon in Animal House, screams, “All is well!!” Technically, Krugman described the US economy as “Surreally Good”. Surreal indeed.
The contradiction between the pessimism of global news and the optimism of stocks only makes it more surreal, I suppose. However, an examination of history might reveal a bit more nuance. The S&P 500 rose 13% between August 31st and September 5th, 1939. Nazi Germany invaded Poland on September 1st. The S&P didn’t fare so well immediately following the Japanese attack on Pearl Harbor; it fell nearly 20% from December 5th, 1941, to late April 1942, but following that low as the US entered the war in earnest, the market returned 70% over the next 14 months. Investing in the S&P at the outset of the Korean War would have netted >30%, including dividends over the next three years. Operation Rolling Thunder began in March of 1965, and the S&P was 8.5% higher 12 months later. The 1991 Gulf War wasn’t great for US stocks initially, but the second Gulf War in March of 2003 started a rally without a pullback until the GFC made things unsafe in 2007.
