Is War Good for the Stock Market?


As possible US military action against Syria dominated the news, and the stock market declined two days in a row, Bob Stokes of offers historical evidence on whether or not geopolitical events really affect the market.

On Aug. 26, US Secretary of State John Kerry said the evidence that the Syrian government under President Bashar al-Assad recently used chemical weapons on its people is “undeniable.” All over the media, Washington insiders speculate that the United States is gearing up to use military action against Syria. And British Prime Minister David Cameron has called for a special session of Parliament to discuss a possible military role for Great Britain in response to the Syrian government.

If military action is taken, what should investors expect from the stock market?

In the February 2010 Elliott Wave Theorist, Robert Prechter addressed the claims by some observers that war is bullish for stocks and by other observers that war is bearish for stocks. First the charts, then the commentary.

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You can argue either side of an exogenous-cause case. Economists have in fact argued both sides of this one. Some have held that war stimulates the economy, because the government spends money furiously and induces companies to gear up for production of war materials.