Last week equity markets sold off on fears of nuclear war sparked by the rogue regime in North Korea. Thursday was particularly rough, at least in the context of the very low volatility environment we have been operating in for some time now. Today, markets were in recovery mode as such threats appear diminished, at least for the moment. What is the informed investor to do in response to such event-driven selloffs? The answer may be, counterintuitively, nothing.
Consider the following, courtesy of Myles Zyblock, formerly of RBC and now toiling for 1832 Asset Management. Markets have been prone to event-driven selloffs for decades, and the wisest response to these idiosyncratic events is basically to ride it out. There is only one instance (post- 9/11) where the S&P 500 did not trade higher one year later. More importantly, “the market” is up every time five and ten years later.
Food for thought as you turn on the nightly news or are bombarded online with the scary headlines some days bring. Don’t get us wrong – this is not news to be ignored. A nuclear war - regardless of the target – is horrific, devastating, and world-shaping. However, history would say it can largely be ignored from an investment perspective.
By the way, we are by no means experts on geopolitics – though we dive deep into them daily in our readings. One expert in the field – George Friedman – has shared his in-depth perspective, and you can check it out here if you want further insights on the situation with North Korea:
http://www.mauldineconomics.com/this-week-in-geopolitics/north-koreas-rational-analysis