Stocks Likely to Focus on Domestic Over Foreign Policy in September

September 2nd Weekly Market Update

The markets were most focused on an impending military strike on Syria last week. While prospects for an imminent strike have faded, the likelihood of military action in the near future remains. Unfortunately, the past offers us many periods of military action. Looking back at these can help us draw parallels and gain perspective on the most likely outcome for the markets.

Although the circumstances surrounding prior conflicts have been varied, investors have experienced the same emotional response and, as a result, the markets yielded a similar outcome. Most military conflicts have prompted a common pattern in the stock market: impending war acted as a negative from when the United States committed to action until action began; once action began, markets rebounded. The rebound can come quickly, as it did in WWII when Doolittle’s raid in April 1942 retaliating for the December 1941 Pearl Harbor attack turned stocks higher despite a war that lingered for years. The buildup to the Korean War caused a sharp market drop in mid-1950, but losses were quickly reversed as soon as U.S. troops were engaged.

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