Feeling overwhelmed by the conflicts in Israel, Palestine, and Ukraine? It’s easy to feel despair, but remember, markets have shown remarkable resilience even in the face of global turmoil. This resilience is a testament to the underlying strength and adaptability of economic systems worldwide. Despite the immediate challenges we face, long-term trends in human progress and market stability continue to offer a glimmer of hope.
Human progress mirrors market trends
Humanity’s progress isn’t linear, much like the stock market. We advance, face setbacks, and then move forward again. This pattern is evident in various aspects of life, from social improvements to economic growth.
For instance, consider how technological advancements have revolutionised our daily lives. The internet, once a luxury, is now a necessity, connecting people globally and fostering innovation. Similarly, medical breakthroughs have drastically improved life expectancy and quality of life. These advancements, despite occasional setbacks, illustrate a broader trend of continuous improvement.
Evidence of progress
Steven Pinker, a Harvard professor, highlights in Enlighten Now that despite ongoing conflicts, many aspects of life have improved. Here are some key points:
- Improved equality: While there’s still work to be done, racial and gender equality have seen progress. Movements like #MeToo and Black Lives Matter have raised awareness and prompted significant societal changes.
- Environmental recovery: Many endangered species are making a comeback. Conservation efforts have led to the recovery of species like the bald eagle and the giant panda.
- Global poverty reduction: Poverty rates are at an all-time low. According to the World Bank, the percentage of people living in extreme poverty has decreased from 36% in 1990 to 9.2% in 2017.
- Higher literacy rates: More people can read and write than ever before. Global literacy rates have risen from 76% in 1990 to 86% in 2016.
- Better sanitation and life expectancy: Health and hygiene have improved, leading to longer lives. Access to clean water and sanitation facilities has increased, reducing the spread of diseases.
Misconceptions about market reactions to conflict
Contrary to popular belief, wars and conflicts don’t necessarily cause stock markets to plummet. Historical data shows that markets often recover and even thrive after the onset of conflicts. For example:
- World War II 1939: The initial loss of 11.99% in the first year, the US stock market gained 34.09% five years after the war began. This recovery was driven by post-war economic growth and industrial expansion.
- Gulf War 1990: The market saw a 95.9% increase five years post-conflict. The rapid resolution of the conflict and the subsequent stability in oil prices contributed to this growth.
- Afghanistan War 2001: Stocks fell 5.25% in the first year, however 5-year post conflict saw a 18.8% increase.
- Syrian Conflict 2011: A 71.53% gain was recorded five years after the conflict started. Despite the ongoing conflict, global markets remained resilient due to diversified economic activities.
The resilience of markets
The resilience of markets can be attributed to their inherent adaptability and the ability of economies to recover from shocks. This resilience is bolstered by proactive measures from governments and central banks, investor confidence, the benefits of diversification, and the interconnectedness of the global economy.
Key drivers include innovation, supportive policies, and investor sentiment. For example, during the COVID-19 pandemic, despite initial downturns, markets rebounded quickly as businesses adapted and fiscal and monetary measures were implemented.
Staying the course
Despite the turmoil, it’s crucial to remain optimistic and avoid speculative investments. The long-term trends show that both humanity and markets have the capacity to recover and grow. During the 2008 financial crisis, many investors panicked and sold their assets at a loss. However, those who stayed invested saw significant gains in the following years as markets recovered. This underscores the importance of a long-term investment strategy and the dangers of reacting to short-term market fluctuations.
By maintaining a long-term perspective, you can stay committed to your investment plan, avoid the pitfalls of emotional decision-making, and benefit from the compounding growth of your investments over time. This disciplined approach helps ensure that temporary market fluctuations do not derail financial goals.
Take action for a better future
Understanding these patterns and keeping a positive outlook can help you navigate these uncertain times with confidence. Working with a financial adviser can be a great way to develop a strategy that aligns with your goals and keeps you on track. They can offer personalised advice, helping you make informed decisions and avoid common pitfalls.
Ready to secure your financial future? Contact a financial adviser today to start planning and make informed decisions that support your long-term goals. By taking proactive steps now, you can build a resilient financial plan that withstands the uncertainties of the future.
