Volatility expected A military intervention by Russia in Ukraine became more realistic last weekend. Russia's Federation Council authorized President Vladimir Putin to protect the safety of Russian citizens in Ukraine and military interests. Investors dislike such news. Historical data shows that stock prices fall and oil prices actually rise with the threat of war. With military action, stock market recovery is often forthcoming. It may sound strange, but stock markets tend to recover as soon as political tensions actually turn into war.
1991: Operation "Dessert Storm In the two weeks before the start of Iraq's expulsion from Kuwait, the S&P 500 fell nearly 5 percent and the price of oil rose 12.5 percent. Two days after the ultimatum expired, the Americans launched an air strike called Operation Dessert Storm on January 17, 1991. On that day, the price of oil fell as much as 33 percent in one day and the S&P 500 rose 3.7 percent.
2003: Iraq War In the three months before the actual attack on Iraq on March 19, 2003, in response to Saddam Hussein's possible development of nuclear weapons, oil had become 40 percent more expensive. The S&P 500 dropped a feather of 11 percent. When President Bush issued the final ultimatum to Hussein, oil prices began to fall and stocks rose. In one week, oil became almost a quarter cheaper and the S&P 500 rose 8 percent.
2011: Libya In the month before the U.S. intervention in the civil war in Libya, stock prices fell about 5 percent and oil became 12 percent more expensive. Once the military actions began, the stock market immediately went up 1.5 percent and even gained 4 percent the following month. In this case, oil prices did continue to rise, even for a month after the intervention began. Four months later, when Gadhafi was defeated, the oil price was already a quarter lower.
What should investors do now? The answer is simple: "Nothing at all". If the prices fall further, the financial markets offer a good opportunity to buy.
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