By Craig Erwin, Ph.D.
How Can The Stock Market Rally During A War?
A war, raging for a month now, has taken a terrible toll on Ukrainians and their country. Many have lost their lives and homes and 10 million have been displaced. Although the Ukrainians have suffered the most by far, the entire world is affected by the war. Economies everywhere will suffer. Inflation may march even higher. Many companies and individuals will surely face hardships and shortages, including food shortages.
So, how are US stocks reacting to the news from Ukraine? The S&P 500 rose the most last week since 2020, right in the middle of a war. How can that be? There are all kinds of possible explanations, but we can’t be certain. What is clear is that it is awfully difficult to predict what markets will do. If you try, you’ll often be wrong, just like the experts. Markets rise and fall, often in ways almost no one expects.
Since the stock market appears to be so unpredictable, is there anything we can count on? Yes, in the long run the stock market’s trend has always been up. Historically the stock market has provided an average return of 8-10 percent annually over the long term. That’s about the only thing you can count on. But that tiny bit of information is powerful. It makes millionaires out of many of us. And all we need to do is buy and hold. And keep buying. And keep holding.
Have you tried to time the market, getting in and out of the stock market when you think the time is right? Do you buy and hold? Are you worried about the future, given all of the bad news piling up?
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