SHARETIPSINFO >> Articles Directory >> How War can Affect Stock Market
With the recent events, you may be wondering how war can affect stock market, isn’t it? Well, they are two totally different things, but wars are a big issue when you are thinking of making money. The stock market reacts differently to different things. Take World War 1 for example. The stock market closed for 4 months after the war started! When it finally reopened, the Dow Jones industrial average was down 30 percent. Two years later in1915 it was back up to 80 percent. The U.S. went back into war in 1917. The share market was already getting better in late 1918 when the war ended. During Pearl Harbor the market wasn't the best place to make money. Wars are not the only thing that affects the stock market. The day of President Kennedy's assassination, the Dow was down 3 percent. Six months later it was back up to 12 percent as if nothing happened. The companies that do the best during wars and other tragic events are companies that sell military stuff like weapons, gun powder, guns and things like that.
Being a trader
There is no question that the stock market is being affected by war jitters. When it looks like peace we have a strong rally. When it looks like shooting will begin momentarily the market takes a dump. What should you do with your stock, mutual funds or cash that is waiting to find a home? There is a saying "When in doubt get out". And that applies just as strongly today to everyone whether you area professional trader or a retired person living off your equity income.
You might say that I am not a trader or speculator so I won't do anything. Let us clarify what you really are. You are a speculator whether you want to admit it or not. The only thing that separates you from the floor trader who is scalping for a few ticks and someone who has thousands of dollars in a retirement account is the time frame. If all you do is buy and hold you still are a speculator. You get some share tips as well. You are hoping the market will come back. What your broker did not tell you is that long-term bull markets are followed by long-term bear markets of equal length. Because we have been in a long-term bull from 1982 to 2000 the mindset of the investor has become conditioned to believe the every correction will see another new high. That is true, but can you afford to wait that long? In the crash of 1929 it took almost 25 years to see a new high in the market averages. Just look at the BSE and you would come to know about the market.
Overall Trend
With the market so precariously perched it might be best to stand aside with your cash in your hand or under your mattress. When the Iraq war starts we could see a 1,000-point move and it could be either direction. What kind of a gambler are you?
We'll see. Ask yourself this question: Is this bear market caused by Iraq? Back in 2000 no one knew where Iraq was on the map much less were able to spell Baghdad. We can't blame Saddam for the loss of about 50% of market equity. When it comes right down to it the Iraq war is just another event in a long-term bear market just as 9/11 was. Events do trigger violent moves, but the overall trend is what is important and now that is down.
There is good business when FIIs pump money into the bourses, but when they hold back, business is poor. The bourses do poorly when there is war or the hint of war, political instability or a crisis of any sort. When prices of shares go up, it usually means that the particular company or sector is doing well. But prices can also be hiked by creating an artificial demand, in which case investors stand to lose heavily when the situation returns to normal.
Another old saying is 'don't fight the trend'. To earn money in stock market it is always better to follow stock market trend !!
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