Stock Market Chant: The Fresh Rallying Cry for Investors
Hey there!
You might think that investors would shy away during international crises, but you'd be wrong! These financial folks just can't resist showing up to the party even when things go south. Let me tell you why.
Now, you wouldn't believe it, but even during missile strikes in the Middle East (as happened on June 13, for instance), and initial drops in S&P 500 futures (like the 1.6% dip), the American stock market bounces back like a pro. It's not unusual for the index to get close to its all-time high around 6,000 points, as reported by The Economist.
This phenomenon has a catchy name now—the new mantra of the stock market is "Nothing ever happens." Sounds like a mottochanneled from the popular internet forum 4chan, and it reflects a long-standing skepticism towards sensational headlines. Think about China's anti-lockdown protests, or India-Pakistan clashes—sure, they cause a bit of concern, but not enough to shake the foundations of the market.
In other words, investors buy on dips, even in the thick of international crises. Private investors shelled out a whopping $20 billion on stocks in the last three months alone. But don't just take my word for it; a 1988 study by economists from MIT and Harvard showed that even major events like Pearl Harbor or the Cuban Missile Crisis didn't create extreme market volatility. Most of the largest one-day drops weren't even linked to news at all!
Assessing geopolitical threats can be tricky business. The likelihood of catastrophic events like nuclear war is extremely low, but the consequences would be huge. So it makes sense that investors often choose to ignore them. The "Korean discount" on the South Korean stock market is actually due to poor corporate governance, not the North Korean threat.
Now, the global economy has transformed, and the US is an energy exporter. This reduces the economy's sensitivity to external shocks and shifts the focus to factors like innovation, consumption, and profit growth. In fact, the expected profits of S&P 500 companies are now higher than before US PresidentDonald Trump imposed tariffs.
So while a stock market crash is possible if a truly significant event occurs, investors betting on the market's resilience believe that the main thing happening is in the economy, not on battlefields.
Now, if you're curious, here's a bit of extra information. Historically, equity markets have shown remarkable resilience, bouncing back quickly after initial downturns caused by geopolitical shocks. In the past 80 years, the Dow Jones Industrial Average (DJIA) recovered to positive territory within six months of 23 major crisis events. For example, after the severe World War II setbacks in 1942, the market rebounded and rose by 50% by 1945. During the Gulf War in 1990–1991, the market rose 4.6% in the initial days and 15% within six months. After the 9/11 attacks, the market recovered 24.8% within six months.
New patterns of rapid rebounds have emerged, with the S&P 500 typically declining around 6% during a crisis but often fully recovering within a few weeks and rallying significantly in the following year (+15% or more). Factors contributing to market resilience include macroeconomic and policy support, modern market structures and intervention, sectoral and geographic diversification opportunities, and avoiding the pitfalls of panic selling.
However, disruptions to global energy supplies can prolong market downturns, as they did during the 1973 Arab-Israeli War and OPEC embargo (21% market drop, 6-year recovery) and the 1979 Iranian hostage crisis (prolonged declines linked to inflation spikes).
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Investors, in the midst of international crises, continue to invest in the stock market, as shown by the $20 billion spent on stocks in the last three months alone. This behavior is a testament to the resilience of the stock market, with the S&P 500 typically declining during a crisis but often fully recovering within a few weeks and rallying significantly in the following year. This trend, where investors buy on dips, is one reason why finance experts often refer to the stock market's motto, "Nothing ever happens."
