Professor Glenn A. Okun
The Rabid Capitalist: The Big Point is a brief summary of a detailed note available to paid subscribers.
The plays that investors should run during military conflicts defy their intuition. The historical data lead to reliable conclusions:
- Markets rise during wars, not fall. Seven of eight major U.S. conflicts produced positive total equity returns during the conflict, often exceeding long-term historical averages.
- Volatility falls in wartime. Stock volatility averaged roughly twenty-eight percent below peacetime levels during active conflicts, as government spending created earnings predictability for defense-adjacent industries.
- Oil shocks, not war itself, are the real threat. The two worst wartime market events — the 1973 Arab oil embargo and the 1990 Kuwait invasion — were oil supply disruptions first and military conflicts second.
- Post-war performance is highly conditional. The twelve-month return after conflict onset was positive seventy-three percent of the time (median: +9.7%), but ceasefire-period economic conditions dominated — Vietnam’s aftermath (oil embargo: −40.9%) and Korea’s aftermath (+44%) illustrated the full spectrum.
- Style rotation follows a predictable pattern. Value beat growth during inflationary wartime conditions; small cap defeated large cap during the post-war recovery phases. Defense and energy sectors led during active fighting; small-cap value and industrials led in the reconstruction period.
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