|By Robert Folsom, July 14 2006|
All the stories about the stock market today (and this week) repeated the same script:
“Stocks tumbled again Friday as traders weighed the exchange of blows between Israel and Hezbollah”
Gosh, I wonder what investors would do if they had to weigh something bigger than an “exchange of blows between Israel” and its enemies. Something like, well, huge troop movements, surprise attacks, immense tank battles, tens of thousands of casualties aka, a real Middle East war.
But wait, there’s no need to wonder — the past 60 years have seen several conflicts which fit that very description; indeed, you can see precisely what the Dow Jones and S&P 500 stock indexes did from the time the fighting started. Note the dates on the maroon vertical lines.
Figure 1 – The 1948 Arab-Israeli War, May 14 through June 11
Figure 2 – The Six-Day War, June 5 through June 10, 1967
Figure 3 – The Yom Kippur War, Oct. 6 through Oct 26, 1973
Had enough? Go re-read today’s financial news with the above in mind, the laugh’s on me. I won’t bother to show you a chart of the period when Israel previously invaded Lebanon — most historians date it from 1982 through 2000. Shouldn’t take any deep thought to recall what U.S. stocks did during those years. If conflicts in the Middle East move the stock market, then you tell me: Which direction does the “movement” appear to take?
In truth, wars in the Middle East DO NOT move the stock market. Every single day includes “good” and “bad” news of some sort, and it’s easy to retrofit that news to an up or down close in the Dow. It’s very believable, once you stop thinking for yourself.
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