The WAR Report: High Stock Market Volatility During the Wars in Afghanistan and Iraq

This is just a couple of the most volatile dates from the past two wars we got into with Afghanistan and Iraq. Only days with – or + 2% volatility on the SPY are pulled. October 10, 2001 Wednesday DOW +2.1%, S&P + 2.3%, NASDAQ, +3.6%. The first day with real movement related to war was 10/10/2000. At this point, the US had been striking Afghanistan for the past three days. Apparently, ''people are starting to get some level of comfort with the way we're handling it,'' said Stephen J. Massocca. It helped that the week before, Bush had proposed around $100 billion in emergency stimulus and spending related to the 9/11 attacks, and the market had been greatly depressed before it. October 29, 2001 Monday DOW -2.9%, S&P -2.4%, NASDAQ -3.9% Just a few weeks later, there didn’t seem to be an end in sight for the conflict in Afghanistan. Concerns that it would be longer than expected and inhibit the recovery of the economy (still suffering from the dotcom fiasco). Of special note here is Boeing losing one of the largest military contracts in history (at the time), which dropped the company’s shares by -10.4%. The news headlines of the prior weekend had also been grisly, anthrax scares, rumors of additional conflict in Iraq, and nothing good coming out of Afghanistan. Consumer confidence and unemployment reports were scheduled later in the week, none of which were expected to be rosy. Afghanistan got resolved pretty quickly and doesn’t seem to have caused too much trouble, Iraq on the other hand… November 11, 2002 Monday DOW -2.1%, S&P -2.1%, NASDAQ -3% About a year after Iraq war rumors started circulating and the US economy being freshly out of the dotcom bubble crash, markets dived on 11/11 with news that American troops were likely to be deployed against Iraq. The Pentagon had just approved plans for an invasion of around 250,000 soldiers, if the United Nations should fail in the arms inspection efforts. Iraq and Saddam Hussein had until Friday to eliminate any weapons of mass destruction and open up their arms sites to inspectors. Considering WMDs were never found, he probably should have done it. No other major news was there to distract traders and the prior month had seen a rally so a sell off here seemed appropriate. January 24, 2003 Friday DOW -2.9%, S&P -2.9%, NASDAQ -3.3% War with Iraq was now becoming imminent, the dollar sank about 1% against the euro, down 8.3% since December. Gold hit a six year high of $368. The problem didn’t seem to be war, but rather that the international coalition that the U.S. had hoped to build against Iraq was crumbling, many of it’s allies did not seem keen on getting involved. ''It's not the going to war. The problem is that we don't have the support of many other countries.'' Profit estimates getting slashed by a variety of companies like Microsoft, Intel, AT&T, and IBM helped the pessimistic atmosphere that day as well. January 30, 2003 Thursday DOW -2%, S&P -2.3%, NASDAQ -2.6% Just under a week later the market slid again. The Commerce Department reported a slow pace of economic growth in the last quarter of 2002, though this dismal outcome was apparently expected. The primary concern seems to again be with Iraq. Most analysts did not expect the economy to rebound if an active war with Iraq were to breakout, especially while it was still uncertain how quickly it would be finished. AOL announcing a $44.9 billion loss that day could not have helped either. March 10, 2003 Monday DOW -2.2%, S&P -2.6%, NASDAQ -2.1% The war with Iraq came back around again, with time as it became increasingly clear that major powers like France, Russia, and Germany would not be backing the U.S. in this conflict. This lack of international support seems to have increased the “risk” that a potential war would be wrapped up quickly. Further contributing factors were 308,000 jobs lost in February of ‘03. March 13, 2003 Thursday DOW +3.6%, S&P +3.5%, NASDAQ +4.8% All it took for a boom during this time was a delay, agreed upon by the US, of using force to disarm Iraq. Both the U.S. and Britain were pushing the United Nations Security Council for a firm deadline for the disarmament of Iraq, with a war to follow if Iraq did not comply. Secretary of State Colin L. Powell said, however, that it might be better to go to war without a United Nations vote. Oil was reported to be at 12 year highs. A good amount of blame is placed on hedge funds, who had been very short leading up to 3/13. The market had greatly fallen the week before, so this sort of temporary good news seems to be all it took to get things going again. March 17, 2003 Monday DOW +3.6%, S&P 3.5%, NASDAQ +3.6% Despite all the stress the prospect of a war with Iraq had caused, it seems that a decision to just do it is all it took to send markets up again. Why? Apparently uncertainty is what scared investors, not the idea of war. Memories of the last gulf war suggested a quick victory for the United States and lower oil prices. Oil dropped, because traders assumed the war would not disrupt the flow of oil. Overall, the subject did seem rather divisive over the long term, but it seems that getting over pointless diplomatic attempts meant that the war could move to the phase and be that much being closer to being over with. One fund manager made, what I thought, was a really good point: ''If the war goes well, and if the economy catches a bit, it won't be strong, and six months later we'll be back in the same slow-growth soup that we are right now,'' Mr. Gross said. In addition, he said, investors seemed to be ignoring the cost of the war and of reconstructing Iraq.''I think we're looking at deficits of $400, $500 billion as far as the eye can see, and that ultimately means higher inflation, higher interest rates.'' March 21, 2003 Friday DOW +2.8%, S&P +2.3%, NASDAQ +1.2% From what can be gathered, investor optimism was high that the war would end in America’s favor. The market had been rallying for about 8 days now, and it seems that control over oil (which was important to America’s depressed economy) would be the best. I strongly encourage anyone who wants a quick summary of how the stock market reacts to war to check out the NYT from this day. China also called for an immediate end to the war, as it did in the recent case of Iran. March 24, 2003 Monday DOW -3.6%, S&P -3.5%, NASDAQ -3.7% It took just a weekend for these gains to get annihilated. Stranger yet, the American military had made really good progress and was already well on their way towards Baghdad, the capital of Iraq. The fighting was fierce and global support very lukewarm. Apparently most were optimistic that the war would be a walk in the park, but at the moment, things were seeming like the war might last longer. Oil started to rise again, spreading fear to airline and travel stocks, as travel prices were expected to jump. Douglas R. Cliggott made a comment that has aged extremely well: ''We are really only in the first inning of our involvement in the Middle East,'' he said, pointing to estimates that large numbers of troops might be needed in a postwar Iraq. ''There is a very significant possibility that we will have a tremendous number of young men and women there for a long time, and the financial impact of that has not been incorporated in financial asset prices.'' April 2, 2003 Wednesday DOW +2.7%, SPY +2.6%, NASDAQ +3.6% All eyes were on the war. By early April the U.S. military was rapidly approaching Baghdad and the seizure of that city was expected to lead to a rapid conclusion of fighting. The timing was excellent, considering the Commerce Department reported factory orders had fallen much more than analysts expected, further underscoring the weak state of the economy at that time. Here’s just a delightful quote from a Wall Street fella in regards to the situation: ''the market is going to go up and down more on emotion than valuation,'' said Scott Black, the president of Delphi Investments in Boston. ''If we topple this regime in the next couple of weeks, and we don't have too much collateral damage, which is a fancy name for not killing too many women and children, the market's poised for a huge rally.'' That was basically it. Baghdad was taken exactly a week later and though the war in Iraq would officially go on for 8 more years, it wasn’t the same headline shaking news that it had been. The Gulf War, Afghanistan, and Iraq have one thing in common; the major fighting was over very quickly. The occupation of Afghanistan lasted for nearly two decades and Iraq is still ongoing, to some extent. There were surely smaller movements that happened as a result of the Bush era wars, but my focus was on the big boy movements. Sources: https://www.nytimes.com/2001/10/11/business/the-markets-stocks-bonds-shares-rally-as-worries-over-afghanistan-fighting-ease.html https://www.nytimes.com/2001/10/30/business/the-markets-stocks-and-bonds-major-gauges-drop-sharply-as-investors-take-profits.html https://www.nytimes.com/2003/01/25/business/the-markets-stocks-bonds-stock-indexes-and-the-dollar-fall-sharply.html https://www.nytimes.com/2003/01/31/business/markets-stocks-bonds-shares-off-sharply-investors-add-weak-economic-data-mix.html https://www.nytimes.com/2003/03/11/business/the-markets-stocks-bonds-concerns-about-economy-and-war-send-stocks-down.html https://www.nytimes.com/2003/03/14/business/the-markets-stocks-bonds-markets-rally-as-a-un-vote-is-delayed.html https://www.nytimes.com/2003/03/18/business/the-markets-stocks-bonds-stock-prices-rise-as-war-in-iraq-appears-inevitable.html https://www.nytimes.com/2003/03/22/business/nation-war-market-place-bit-history-sometimes-war-sends-shares-higher-sometimes.html https://www.nytimes.com/2003/03/25/business/the-markets-stocks-bonds-worldwide-market-rally-ends-on-fear-of-a-longer-war.html https://www.nytimes.com/2003/04/03/business/the-markets-stocks-bonds-stocks-rally-as-hopes-rise-for-brief-war.html