Markets React to War

After the market's strong performance on Friday and again today, some have asked if war is good for the market.

We don't think that's the first question to ask at a time like this, but people are certain to worry about it anyway. We could (and some will) assign these movements to some sort of euphoria about the drumbeats of imminent battle, but (a) that's insensitive, and (b) that's inaccurate. The stock market deals in a great number of emotions, but it likes uncertainty least. Even if the news is bad, it's better than wondering, "How bad?"

Think about it -- month after month, we've heard the same thing: "War jitters sent the market lower today...." This didn't just come from the "folks who get paid to say stuff, even if they don't know." It also came from Alan Greenspan, the head of the Federal Reserve. Things are bad because people don't know what's going to happen next.

All of this succinctly illustrates the late investing guru Ben Graham's old adage: "In the short run, the market is a voting machine, but in the long run, it is a weighing machine." There are few differences in the economic prospects of most companies today than a week ago, and yet they're priced much higher. And this is as we go into a war.

Even though many analysts say it will be quick, there are a wide range of outcomes. Imagine what the market would do if war with Iraq is fast! Would it double? Triple?

That's not only callous, it's wrong. The stock market is nothing more than a combined evaluation of the prospects of American businesses. This provides a component for emotion (the "evaluation" component) and cold, hard facts (the "prospects"). Company prospects don't improve just because we feel better about them. They improve through action and results.

What we're seeing over the past few trading sessions is people feeling more certain, even if what they're feeling more certain about is war, not corporate performance. At some point, companies will have to earn that certitude by turning in improved results. We anxiously await this. In the meantime, we're going to support the men and women in arms the best way we know how.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1151090, ~/Articles/ArticleHandler.aspx, 5/28/2017 8:27:42 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 1 day ago Sponsored by:
Change down DOW 21080.3 -2.7 0.0%
Change up S&P 500 2415.8 0.8 0.0%
Change up NASD 6210.2 4.9 0.1%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes