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War and Stocks

War in Ukraine and Stocks

The news of war this past week in Ukraine sent market volatility up and global markets down. The CBOE VIX spiked to over 30. Oil prices went over $100 per barrel, and gold prices went over $1,900 per ounce. However, all the major indices and exchanges were down. The Nasdaq, which was already declining as tech stocks plunged in the New Year, neared a bear market on February 24th. However, by the end of the week, the oil prices dropped back to where they were at the start of the week. In addition, stock market indices and exchanges recovered, finishing above where they started at the beginning of the week, as seen in the chart below from StockRover*. Seemingly, investors and the stock markets shrugged off the war in Ukraine.

This fact brings up the question of the effect of war on stocks? 

Source: OilPrice.com
Ukraine War Effect on Stocks
Source: StockRover*
War and Stocks
War and Stocks

Effect of War on Stocks

The common perception is probably that it is a significant negative. In many cases, the initial stages of war or conflict are negative for stocks. However, the long-term impact is often tiny, especially if the war does not directly involve a country. For instance, most western stock markets have ignored conflicts in the Middle East and Africa.

As Ben Carlson points out,

From the start of WWII in 1939 until it ended in late 1945, the Dow was up a total of 50%, more than 7% per year. So, during two of the worst wars in modern history, the US stock market was up a combined 115%,

Furthermore, LPL Research examined geopolitical events and stock market performance and found a short-term negative effect, but returns were positive over the long term. For instance, their study showed between 1990 and 2000, the Dow Jones Industrial Average (DJIA) declined about 2% on average during 16 significant events, including the Gulf War, Iraq War, and 9/11. However, the Dow 30 rose an average of 5% at three months and 7.9% at six months after the event.

The table below shows the results of reviewing 20 major geopolitical events from World War II until 20. The average 1-day decline was (-1.2%), and the average total reduction was (-5.0%). In addition, it took on average 22 days to reach the maximum decline and 47 days for recovery.

War-Conflict and Stock Market Returns
Source: LPL Research

So, it is not clear stock prices will decrease over the long-term only because of war or conflict. Instead, they seem to rise over time.

Why Do Stocks Rise During Times of War?

Another study found that when there is a pre-war phase or a surprise outbreak of war, there is a decrease in stock prices. However, the outbreak of war usually causes an increase in stock prices—the reasons why were not clear.

Yet another study by Mark Ambruster of the CFA Institute examined returns and volatility of US stocks and other asset classes during World War II, the Korean War, the Vietnam War, and the Gulf War. He looked at large-cap stocks, small-cap stocks, long-term bonds, five-year notes, and long-term credit. The results show that stocks typically outperform with lower volatility, especially small-cap stocks. On the other hand, long-term bonds, 5-year notes, and long-term credit underperform. The only exception was the Vietnam War.

Source: CFA Institute

Investors’ recent experience certainly supports the conclusions of the studies mentioned above. Russian troop buildup near the Ukraine boirder was first reported on October 30th, 2021, by the Washington Post. The stock market plateaued between that time and early January when it started to decline. However, once the attack began, the stock market surged on February 24th and 25th, 2022.

Final Thoughts on War and Stocks

Overall, the reasons why stocks perform as they do during wars, conflicts, and geopolitical events are not clear. However, investors are probably better off not guessing what will happen. Ultimately, a long-term dividend growth investor is a buy-and-hold investor.


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The Stock of the Week

Today I highlight 3M Company (MMM). The stock is a Dividend King with 64 years of dividend increases. Only nine companies have exceeded 60-years of increases. 3M is also one of the few stocks with 100+ years of paying a dividend. The forward dividend yield is now about 4.15%, and historically a dividend yield of more than 4% has been an excellent time to buy 3M. Besides the high dividend yield, the price-to-earnings (P/E) ratio is about 14.5X, below the 5-year and 10-year averages. Furthermore, 3M is likely exploring Johnson & Johnson’s (JNJ) strategy of using the bankruptcy process to settle litigation surrounding ear plugs and PFAS. 3M is trading well below its 50-day and 200-day exponential moving averages (EMAs).

The screenshot below is from Stock Rover*.

3M Stock Chart
Source: Stock Rover*

Dividend Increases and Reinstatements

Search for a stock in the list of dividend increases and reinstatements. This list is updated weekly. In addition, you can search for your stocks by company name, ticker, and date.

Dividend Cuts and Suspensions List

The dividend cuts and suspensions list was most recently updated at the end of February 2022. As a result, the number of companies on the list has risen to 544. Thus, well over 10% of companies that pay dividends have cut or suspended them since the start of the COVID-19 pandemic. The list is updated monthly.

Two new additions indicated that companies are experiencing solid profits and cash flow in February.

The newest additions were both utilities, PPL Corporation (PPL) and Excelon (EXC).

Market Indices


Dow Jones Industrial Averages (DJIA): 34,059 (-0.06%)

NASDAQ: 13,695 (+1.08%)

S&P 500: 4,385 (+0.82%)

Market Valuation

The S&P 500 is trading at a price-to-earnings ratio of 25.0X, and the Schiller P/E Ratio is about 35.9X. These two metrics were up in the past week. Note that the long-term means of these two ratios are 16.0X and 16.9X, respectively. 

The market is still overvalued despite the recent market correction. Earnings multiples more than 30X are overvalued based on historical data.

S&P 500 PE Ratio History

SP500 PE Ratio
Source: multpl.com

Shiller PE Ratio History

Shiller PE Ratio
Source: multpl.com

Stock Market Volatility – CBOE VIX

This past week, the CBOE VIX measuring volatility was up flat at 27.59. The long-term average is approximately 19 to 20. The CBOE VIX measures the stock market’s expectation of volatility based on S&P 500 index options. It is commonly referred to as the fear index.

Source: Google

Yield Curve

The two yield curves shown here are the 10-year US Treasury Bond minus the 3-month US Treasury Bill from the NY York Fed and the 10-year US Treasury Bond minus the 2-year USUS Treasury Bond from the St. Louis Fed.

Inversion of the yield curve has been increasingly viewed as a leading indicator of recessions about two to six quarters ahead, according to the NY Fed. The higher the spread between the two interest rates, the higher the probability of a recession.

10-Year Bond minus 3-Month Bill
Source: NY Fed
10-Year Bond minus 2-Year Bond
Source: St. Louis Fed

Economic News

The Conference Board’s Consumer Confidence Index declined slightly in February to 110.5 and follows a 111.1 value for January; this is the second consecutive decline and a five-month low. The Present Situation Index, based on consumers’ sentiment of current business conditions and the labor market, increased to 145.1 from 144.5 in January. Inflation woes were undoubtedly a factor as the proportion of consumers planning to purchase homes, automobiles, and major appliances decreased. Based on consumers’ six-month outlook for income, business, and labor market conditions, the expectations index dipped to 87.5 in February from 88.8 in January. The share of consumers that said jobs are currently plentiful decreased to 53.8%, down from 55.0%. Consumers that said jobs are currently hard to get were little changed at 11.8%, down from 12.0%.

The Bureau of Economic Analysis’ second estimate on fourth-quarter gross domestic product (GDP) growth reportedan economy expanding at a seasonally adjusted annual growth rate of 7.0%, well above the 2.3% pace set in the third quarter and up slightly over the first estimate of 6.9%. For all of 2021, the nation’s GDP grew by 5.7%. The acceleration in real GDP was driven by increases in private inventory investment, exports, PCE, and nonresidential fixed investment, partly offset by decreases in federal and state, and local government spending. In addition, imports, which are a subtraction in calculating GDP, increased.

The US Census Bureau reported that new orders for durable goods increased 1.6% to a seasonally adjusted $277.5 billion in January. The increase follows an upwardly revised 1.2% reading for December and is up to eight out of the last nine months. Total durable-goods orders are up 16.5% year over year.

Thanks for reading War and Stocks – Week in Review!

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Prakash Kolli is the founder of the Dividend Power site. He is a self-taught investor, analyst, and writer on dividend growth stocks and financial independence. His writings can be found on Seeking Alpha, InvestorPlace, Business Insider, Nasdaq, TalkMarkets, ValueWalk, The Money Show, Forbes, Yahoo Finance, and leading financial sites. In addition, he is part of the Portfolio Insight and Sure Dividend teams. He was recently in the top 1.0% and 100 (73 out of over 13,450) financial bloggers, as tracked by TipRanks (an independent analyst tracking site) for his articles on Seeking Alpha.

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