Fear, Panic And War Are Bad Reasons To Sell Stocks

TheStreet2022-03-02

SummaryMany people are concerned that the war in Ukraine will damage their portfolios.It is natural to be worried during scary situations, but history shows that times like now are poor times to sell....

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Comments

fysx49
2022-03-02
fysx49
It's depend whether you are speculating or logn term investor
lwl141
2022-03-02
lwl141
Exactly
Road1Warrior
2022-03-02
Road1Warrior
I was too poor to play the dot-com period. So with that experience, I m keeping my eyes wide open. Don't be greedy but don't stay out entirely either.
W1tcw0
2022-03-02
W1tcw0
Ok
ZenInv
2022-03-02
ZenInv
Except when a bad company announces badearnings in a fear environment
Ellery111
2022-03-02
Ellery111
Ok

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An armed conflict between Russia and Ukraine has created an atmosphere of panic unlike any in recent memory. Various media outlets have described the crisis as the biggest armed conflict in Europe since World War 2. The days-old conflict has already claimed hundreds of lives, and displaced hundreds of thousands of Ukrainians. It is a very frightening, and tragic, situation.So, it shouldn't come as any surprise that markets have been jittery since the war began. On February 24, the first day after Russia's invasion, markets opened1.65% lower than they closed the day before. In subsequent trading days, the markets regained what they had lost, and then some. Nevertheless, scary sounding headlines continued to be released for the remainder of the week. Some examples include:\"These 13 Stocks Implode as the World Prepares for War.\" (Investor's Business Daily).\"Stocks tank as War Threat intensifies.\" (Morningstar).\"War Will Give Stocks no Peace.\" (Forbes).The subtext of these headlines couldn't be clearer:War is a scary prospect for stock market investors. Be very afraid!To be sure, there are legitimate reasons to be afraid of war. The human toll is very real, and wars can bring short term economic disruptions as well. The war in Ukraine has reportedly taken energy pipelines offline, contributing to higher energy costs and inflation. So there are very real reasons to be concerned. The question is,\"is the stock market one of these reasons?\"Going by history, no. Although the flash point moments in war do tend to be correlated with brief selloffs, stocks recover from these events quickly. There was only one case in the last 100 years in which a war was correlated with a long-term decline in stock prices but, as you're about to see, the war was not likely what caused stocks to go down that time. Generally speaking, wars can coincide with panic selling, but it doesn't last long. Given this, it would be foolhardy to sell your stocks right now because of the situation in Eastern Europe.Wars and Stocks: the CorrelationIf we look at historical market data, we can see that the very early moments of wars do tend to be correlated with stock market selloffs. A recentFortune article reviewed five major conflict situations and how they impacted stocks. It concluded that war-related stock market dips do occur, but tend to be short lived. The examples given are:World War 1: the Dow fell 30%, then was closed for six months, then surged 88% in 1915.World War 2: 2.9% drawdown on the morning of the Pearl Harbor attack. Losses erased within a month.Cuban Missile Crisis: tiny 1.2% selloff followed by a 10% gain for the remainder of the year.9/11: 15% selloff within days of the attack. The market didn't find a bottom this time until 2002. It then went on to enter a bull market that lasted until 2008.U.S. invading Iraq: stocks jumped 2.3% on the day of the invasion and ended the year up 30%.I've included a chart below, borrowed from Trading Economics, that shows the approximate dates of the events above (except World War 1). Looking at it visually, you can see that all of these war-related events coincided with near term lows, but were followed by long-term gains. The one exception is 9/11: it took stocks nearly a year to find a bottom after that one. However, in that particular case, the long-term downtrend was not actually caused by the attack, as I'll explain shortly.Trading EconomicsAs you can see, 9/11 occurred about halfway through a bear market that began in 2000 and ended in 2002. It was the one \"war\" related event of the five mentioned in Fortune that was followed by prolonged bearishness. However, it was also the one where there was a lot more than conflict contributing to the selloff. The 9/11 crash occurred about halfway through the Dotcom bubble burst. The bear market of the time was caused by the rapid collapse in prices of high flying tech stocks, some of which went bankrupt and were delisted. Notable examples included:Pets.com (went bankrupt).Priceline (acquired after falling 94%).Garden.com (shut down after falling to 9 cents a share).All of these stocks went bust long before 9/11 was part of the conversation. Therefore, it's hard to say how much of the losses in the 2000-2002 period were due to the bubble collapsing, and how much were due to 9/11. The 2000 bubble collapsed mainly due to valuation concerns, companies experiencing financial strain, and a series of interest rate hikes in1999 and 2000. At the peak, the NASDAQ had a 175 P/E ratio. These factors probably contributed to the 2000-2002 bear market more than any conflict did.If we take the post-9/11 selloff without the historical context, then it took the markets a little under a year to recover from the 15% drawdown. That's not too bad, all things considered. Of course, the markets took much longer to get back to the highs set in 2000. The S&P 500 took six years to get back to the previous top, the NASDAQ a full 15! So the bear market of 2000-2002 was quite long, and the recovery from it was even longer. But again, most of it took place long before 9/11. The losses incurred in the immediate aftermath of that event reversed in less than a year.Why Isn't War Bad For Stocks?Having established that war has not historically been bad for the stock market, the next logical question to ask is, \"why?\" War is certainly among the most destructive mass-scale activities human beings participate in. Lives are lost, infrastructure is destroyed, people are displaced, and the list just goes on and on. It certainly seems like wars destroy a lot of value. Why, then, do stocks generally go up when they are happening?First, it helps to understand how broad the stock market really is.To begin with just the U.S., the Wilshire 5000 index consists of 3,500 stocks. It is generally taken as equivalent to the total U.S. stock market. It may exclude some OTC stocks, but it is a pretty good proxy for U.S. listed securities.Looking abroad, there are even more stocks to choose from. The OECD says that there are41,000 listed equities globally, and the number rises every year.What all of this means is that the universe of stocks is very large. It follows logically from this that different stocks will respond to armed conflict in different ways. While you might find some companies out there that lose money because of armed conflict, you'll find others that won't. Some companies will inevitably do just fine. Out of respect for the lives in jeopardy in Eastern Europe right now, I will avoid any talk of arms dealers, defense contractors and other \"war beneficiary\" stocks. But I will draw your attention to one major industry that serves as a perfect illustration of how companies can thrive during wars:EnergyAs you might be aware, the Russia/Ukraine war has severely disrupted global energy supplies. Russia's Nord Stream 2 pipeline has been suspended, pipelines in Ukraine have been knocked out, and Western energy companies have withdrawn from Russia. Without a doubt, there are Russian energy companies that could lose a lot of money over this.Gazprom(OTCPK:OGZPY), for example, is heavily invested in the now suspended Nord Stream 2. Its stock had fallen 35% for the year before trading was suspended on February 25th. That's noteworthy because energy stocks as a whole rose in the same period.So, Russian energy stocks are in a bad place right now.But remember:It's a big world out there.All of the oil that's not flowing because of the Russia/Ukraine conflict has to be supplied by someone else. And because of the supply shock, that \"someone else\" is going to collect higher prices on the oil they sell. When supply decreases but demand is unchanged, prices rise. And right now, the global supply of oil is being reduced.There are many companies that can thrive in such an environment. If you look at a Canadian energy company like Suncor Energy(SU), for example, it is about as insulated from the Russia/Ukraine situation as you can imagine. It makes money by selling gasoline to Canadians and by exporting crude oil to Americans. None of this is in any way threatened by the situation in Eastern Europe. Yet oil prices are rising worldwide, even in regions that are not being directly impacted by the conflict. Gasoline prices are rising right along side them. All of this means that Suncor gets to charge higher prices for its products than it did before. That results in higher earnings, as we saw the fourth quarter. In Q4, Suncor's funds from operations (FFO)grew 157%year-over-year. Net income and operating income swung from losses to profits. That was all thanks to oil prices rising year-over-year. Today, oil prices are even higher than they were in Q4, having set new 7 year highs. So Suncor should do even better in Q1.What this example illustrates is the fact that equities can respond to crises in surprising ways. Sure, some are damaged by pandemonium, but others can do just fine. Overall, the presence of disorder in the world shouldn't affect your outlook. As history shows, it has little effect on the markets.","kind":null,"is_publish_news":true,"is_publish_highlight":true,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":9033132105,"gmtCreate":1646211831354,"gmtModify":1676534104329,"author":{"id":"3577580458147788","authorId":"3577580458147788","name":"fysx49","avatar":"https://static.tigerbbs.com/fe5937c0ada861e9603ef8a12ae3e445","vip":1,"crmLevel":5,"crmLevelSwitch":0,"idStr":"3577580458147788","authorIdStr":"3577580458147788"},"htmlText":"It's depend whether you are speculating or logn term investor","listText":"It's depend whether you are speculating or logn term investor","text":"It's depend whether you are speculating or logn term investor","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":3,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9033132105","repostId":1162614571,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9033138404,"gmtCreate":1646211213165,"gmtModify":1676534104298,"author":{"id":"4100518134095650","authorId":"4100518134095650","name":"lwl141","avatar":"https://community-static.tradeup.com/news/b9c852df521fdb31eb69eb0a12155a0d","vip":1,"hat":"https://static.tigerbbs.com/a3dee1aa3a3a3c1814833a4d3f8a5669","crmLevel":5,"crmLevelSwitch":1,"idStr":"4100518134095650","authorIdStr":"4100518134095650"},"htmlText":"Exactly","listText":"Exactly","text":"Exactly","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9033138404","repostId":1162614571,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9033131230,"gmtCreate":1646210903259,"gmtModify":1676534104275,"author":{"id":"4098084219326670","authorId":"4098084219326670","name":"Road1Warrior","avatar":"https://community-static.tradeup.com/news/444bc0aeceab5292f15cd24cd37ab6c3","vip":1,"hat":"https://static.tigerbbs.com/b073a07f77dbe6b3bec6b12311fde6bd","crmLevel":4,"crmLevelSwitch":1,"idStr":"4098084219326670","authorIdStr":"4098084219326670"},"htmlText":"I was too poor to play the dot-com period.&nbsp; So with that experience, I m keeping my eyes wide open.&nbsp; Don't be greedy but don't stay out entirely either.&nbsp;&nbsp;","listText":"I was too poor to play the dot-com period.&nbsp; So with that experience, I m keeping my eyes wide open.&nbsp; Don't be greedy but don't stay out entirely either.&nbsp;&nbsp;","text":"I was too poor to play the dot-com period. So with that experience, I m keeping my eyes wide open. Don't be greedy but don't stay out entirely either.","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":4,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9033131230","repostId":1162614571,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9033130001,"gmtCreate":1646209519995,"gmtModify":1676534104179,"author":{"id":"4095638693584140","authorId":"4095638693584140","name":"W1tcw0","avatar":"https://static.tigerbbs.com/ca8a4c856bfca4001b708d11ceb05664","vip":1,"hat":"https://static.tigerbbs.com/b073a07f77dbe6b3bec6b12311fde6bd","crmLevel":2,"crmLevelSwitch":0,"idStr":"4095638693584140","authorIdStr":"4095638693584140"},"htmlText":"Ok","listText":"Ok","text":"Ok","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":4,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9033130001","repostId":1162614571,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9033197133,"gmtCreate":1646209267967,"gmtModify":1676534104164,"author":{"id":"4098783902581330","authorId":"4098783902581330","name":"ZenInv","avatar":"https://community-static.tradeup.com/news/033bd47e3df1977aaef462f53997e9f1","vip":1,"crmLevel":6,"crmLevelSwitch":0,"idStr":"4098783902581330","authorIdStr":"4098783902581330"},"htmlText":"Except when a bad company announces badearnings in a fear environment&nbsp;","listText":"Except when a bad company announces badearnings in a fear environment&nbsp;","text":"Except when a bad company announces badearnings in a fear environment","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9033197133","repostId":1162614571,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9033196780,"gmtCreate":1646208423251,"gmtModify":1676534104076,"author":{"id":"4098658286523540","authorId":"4098658286523540","name":"Ellery111","avatar":"https://static.tigerbbs.com/b77233098d9cbd10d0b9699b3444d910","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"4098658286523540","authorIdStr":"4098658286523540"},"htmlText":"Ok","listText":"Ok","text":"Ok","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":7,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9033196780","repostId":1162614571,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":440,"commentSize":155,"repostSize":0,"favoriteSize":3,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.2","shortVersion":"4.29.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/1162614571"}