Binary Event Conflicts Don’t Sink Stock Markets, But This Could

I was originally going to publish the latest article in our option series today, wrapping up our discussion on getting paid to buy stocks, but the market reaction to North Korea seems more pressing, so we’ll discuss that instead.
When most people think about potential events that could derail financial markets quickly, war seems to be near the top of that list. But counterintuitively, the prospect of war is not necessarily bad for stocks. In order to appreciate this, we need to take a look at how some prior conflicts have unfolded.
As we get into this discussion, the first thing I’d like to point out is that this is all conjecture. None of us know what events lay ahead, and therefore none of us can have any certainty in how to proceed. But the goal with any analysis is to assign probabilities to various events as accurately as possible, thereby illuminating the most advisable path forward.
With that in mind, it’s important to recognize that the financial markets have a long history of ignoring North Korea’s provocations. Consider the chart below, courtesy of the Wall Street Journal.

This post was published at FinancialSense on 09/06/2017.