Reference News Network, March 12 report: According to the website of the "Nikkei Shimbun" on March 9, it has been more than a week since the US and Israel struck Iran. With the expectation that the war would end as soon as possible failing to materialize, global financial markets have shown high oil prices and declining stock and bond markets. How long will the "war-time stock market decline" last? A survey of 50 geopolitical events after World War II found that during periods when concerns over oil supply intensified, market volatility often lasted for a long time. For Japan, which is highly dependent on imported energy, the stock market decline was particularly severe.

From the perspective of market experience, the escalation of war or military tensions is often seen as beneficial to stock prices. As the old stock market saying goes, "A war in the distance is a buying opportunity." In more than 30 out of the past 50 geopolitical events, both the US and Japanese stocks had risen within 100 days. Looking at performance one year later, the average gains for both the US and Japanese stock markets reached 8%.

For example, during the Cuban Missile Crisis in 1962, after the market absorbed the worst scenarios of nuclear war, stock prices rebounded sharply as the situation eased. During the Iraq War in 2003, the fall of Baghdad, the capital of Iraq, just three weeks after the war began, actually led to a sense of relief in the market. Moreover, expansion of military spending could also support the economy in certain aspects.

At the beginning of this Iranian crisis, the market still held an optimistic view that "a stock market decline during wartime would not last long."

However, with Iran showing a desperate counterattack posture, the market atmosphere underwent a drastic change. Iran has continuously launched retaliatory attacks on Israeli airports and surrounding countries with US military bases, as well as oil-related facilities, and effectively blocked the vital route for energy transportation - the Strait of Hormuz.

In fact, according to past geopolitical events, once concerns about oil supply intensify, the trend of a prolonged "war-time stock market decline" becomes very significant. In 18 cases where oil prices rose by more than 5% within 100 days, the stock market performances of both Japan and the US were poor.

The difference in crude oil production capabilities between self-sufficient America and Japan, which relies heavily on imports, also had a significant impact. In the past 18 cases of rising oil prices, the US stock market could rebound by an average of 6% within a year and enter a recovery phase; by contrast, the Japanese stock market remained deep in a 2% decline. Although other factors also affect the market during periods of geopolitical risk, on average, the Japanese stock market usually needs more than 400 days to recover to its level before the incident occurred.

Among these cases, the most lasting impact of rising oil prices was caused by the oil crisis triggered by the turmoil in the Middle East in the 1970s, as well as Iraq's invasion of Kuwait in 1990.

In the first oil crisis of 1973, the sharp rise in energy prices directly led to the deterioration of the real economy, and stock prices in Japan and the United States did not recover until around 1975. This was because, with the outbreak of the fourth Arab-Israeli War, oil-producing countries in the Middle East launched an "oil strategy," doubling the price of crude oil.

During the Kuwait War in 1990, due to concerns that the geopolitical risk might spread to neighboring oil-producing countries such as Saudi Arabia, oil prices soared by nearly double within just a few months. At that time, Japan's stock market, which was in the process of bursting from a bubble economy, plummeted by about 30%, and global stock markets also entered a stagnant fluctuation pattern at high levels.

The situation improved with the start of the Gulf War in 1991. As the multinational forces composed of the US and Europe achieved a decisive victory, the market sentiment quickly reversed, showing a trend of falling oil prices and rising stock prices. This was mainly because the war ended within a month, completely eliminating the oil supply concerns in the Middle East.

The reason why oil supply affects market psychology is that if oil prices continue to rise, it will cause serious damage to the real economy. Rising oil prices not only suppress household consumption through higher gasoline prices but also directly squeeze corporate profits due to increased transportation and production costs.

As a result, the market began to worry about the possibility of stagflation, where inflation and economic recession occur simultaneously. This also puts monetary policy in a difficult position, easily leading to a vicious cycle where economic growth is weak, yet monetary policy must be tightened to curb inflation.

According to the analysis of Michael Wilson, chief US equity strategist at Morgan Stanley, among previous cases where geopolitical events caused the US stock market to enter a bearish scenario (weak market), two characteristics usually appeared: "crude oil prices rose by 75% to 100% compared to the previous year" and "the economy was in a recession phase." What is the current situation? Although the US economy has not yet entered a recession, it is approaching the end of the economic expansion cycle while inflation has not yet subsided. If the Federal Reserve fails to implement rate cuts as expected, the impact on the economy may exceed expectations. (Translated by Chen Rui)

Original: toutiao.com/article/7616278545899323958/

Statement: The article represents the personal views of the author.