Member FINRA/SIPCPage 1 o 3
Jeffrey Kleintop, CFA
Chief Market StrategistLPL Financial
LPL FINANCIAL RESEARCH
Weekly Market Commentary
September 3, 2013
Stocks Likely to Focus on Domestic OverForeign Policy in September
The historical pattern or the stock marketaround military actions points to a pre-strikerally recouping earlier losses. However, thecurrent pullback has more to do with domesticeconomic and policy concerns than withoreign policy.
The markets were most ocused on an impending military strike on Syrialast week. While prospects or an imminent strike have aded, the likelihoodo military action in the near uture remains. Unortunately, the past oersus many periods o military action. Looking back at these can help us drawparallels and gain perspective on the most likely outcome or the markets.Although the circumstances surrounding prior conicts have been varied,investors have experienced the same emotional response and, as aresult, the markets yielded a similar outcome. Most military conicts haveprompted a common pattern in the stock market: impending war acted asa negative rom when the United States committed to action until actionbegan; once action began, markets rebounded. The rebound can comequickly, as it did in WWII when Doolittle’s raid in April 1942 retaliating orthe December 1941 Pearl Harbor attack turned stocks higher despite awar that lingered or years. The buildup to the Korean War caused a sharpmarket drop in mid-1950, but losses were quickly reversed as soon as U.S.troops were engaged.In recent decades, the pattern changed slightly, with the stock marketbottoming and starting to recover ahead o the military strike[Figure 1].Examples include:
Stocks bottomed on January 9, 1991, just days ahead o the January 17,1991 start o the Gul War. The related 6% decline that began in mid-December 1990 was ully recouped in the ollowing six trading days.
Stocks bottomed on December 14, 1998, just days ahead o the December16, 1998 bombing o Iraq. The related 4% decline that began in lateNovember 1998 was ully recouped in the ollowing our days.
Pre-Strike Stock Market Rallies
ConfictRelatedDeclineS&P 500BottomedStart oMilitary ActionDays toRecoup Losses
Gul War6%Jan 9, 1991Jan 17, 19916Iraq bombing4%Dec 14, 1998Dec 16, 19984Serbia strikes4%Mar 23, 1999Mar 24, 19999Iraq War13%Mar 11, 2003Mar 19, 200338Libya strikes6%Mar 16, 2011Mar 19, 201126Source: LPL Financial, Bloomberg 09/03/13
Most military conicts have prompteda common pattern in the stock market:impending war acted as a negative;once action began, markets rebounded.