Larry Berman

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In modern times (post-Second World War), wars have had temporary impacts on markets. The most recent escalation in the Middle East and the ongoing war in Ukraine and Russia are recent examples. The first Gulf War in 1991 is another. Short or long lived, their impacts are likely to be temporary in terms of aggregate demand or supply on corporate fundamentals.

The world tends to adapt to these circumstances surprisingly quickly. The supply chain disruptions for food and energy coming from Russia and Ukraine took a while, but is rarely a discussion point in earnings calls anymore as the war rages on.

Ongoing tensions with AI and computer chips amid U.S.-China tensions are another case in point. In general, we do know that wars are inflationary as they increase spending and reduce productivity overall.

Regionally, however, distortions can have a longer-lasting impact. The vast majority of global conflicts have not occurred in North America and have less impact on the largest economy in the world. Obviously, 9/11 was an exception.

We have seen a lingering growth impact in Southeast Asia and Europe from the Russia-Ukraine war as it has a more direct drive to growth, and inflation influence though Japan has been a standout. For most investors, your portfolio construction should be able to benefit from a geopolitical dislocation rather than fear it or run from it. Think rebalancing versus panic or fear.

For the more idiosyncratic (stock/asset specific) day traders that have far more time-sensitive thinking, it likely matters much more. Think of a company that relies on oil prices (airlines, cruise ships) or flour prices (consumer goods) as examples. For most investors, you should not let it impact your longer-term goals.

For those that want to do something, look at it as an opportunity to rebalance your portfolio, if possible, back towards achieving your long term goals. Think of selling some gold that rallied in anticipation and buy some consumer sensitive equities that sold off in anticipation.

But more likely, rebalance some of the exposures such as emerging markets that might have underperformed in anticipation, and reduce some of the safe haven (strong U.S. dollar).

For the U.S., the impact of 9/11 was much more meaningful, as the war hit U.S. soil. But after the initial shock, weeks, months and years later it had zero impact on markets.

All will know that while there was a technical recession at the time, it was not labelled as a recession until a few years later, and the deflating of the 1990s tech bubble was well underway. If you panicked to sell after the market reopened on Sept. 17, you were losing money two weeks later and underwater for most of the next six months.

It’s hard to isolate how much impact geopolitics have as there are always other factors to consider. In 2022 as Russia invaded Ukraine, the FOMC was embarking on a very aggressive and unprecedented tightening cycle, which likely had much more impact on markets than the war itself.

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