What Mr. Rubin discovered was remarkable. A year after these conflicts began, the S&P 500 rose an average of 12.5 percent. This compares to an average annual return (excluding dividends) for the S&P 500 of just 9 percent. In an email, Mr. Rubin said, “The bottom line is that geopolitical events, similar to the current period, have historically led to above-average returns a year later.”
In other words, while the stock market often, although not always, fell in the weeks following the start of a U.S. conflict or other geopolitical shock, stocks typically recovered and rebounded quite quickly. Keeping costs down and staying on the stock market has paid off in the long run.
Watch out for wild cards
The oil market is another matter. Oil prices have risen sharply in the current conflict, as in many previous conflicts. In addition, Rubin noted that a year after the military action began, the price of Brent crude oil, the benchmark for oil outside the United States, also increased. The average price increase was significant, 27 percent. This often triggers higher inflation. And rising oil prices led to recessions, particularly in earlier periods such as the 1970s and early 1980s
Perhaps in anticipation of the current problems in the Middle East, the energy sector of the S&P 500 rose sharply in the weeks before the war. It rose more than 26 percent from the start of the year through March 2, compared with a small loss for the entire S&P 500. Exxon Mobil, the oil giant, rose more than 25 percent through Tuesday. The United States Oil Fund ETF, which holds oil futures contracts, was up by about the same amount. For those with oil reserves, the war was a blessing.
If the conflict ends soon without major damage to energy infrastructure or the natural environment and shipping through the Strait of Hormuz resumes, the shock of higher energy prices may also fade. A prolonged closure of the strait, through which about a fifth of the world’s oil and natural gas transports, could have devastating consequences.