We recently had a client who was quite worried about the state of the world – was this a prelude to turmoil and even war? After spending time talking this through with them, they were much happier. Our comments weren’t just about the usual -markets are volatile but always recover- but also about what history can teach us. They found it so reassuring that we thought we’d share some of it here on our website.
It’s no surprise to anyone that the world is going through a period of extreme volatility. After three decades where peace and democracy seemed supreme and the “strategic environment was benign” (to paraphrase a number of commentators) those certainties are being shredded almost daily. The US president seems intent on upending the post Second World War Western consensus, with a return to tariffs and extreme isolationism, leaving the rest of the West to work out how to fend for itself. Russia is being given a free hand to meddle in Europe, China is demonstrating its expanding reach and AI’s ability to be used for nefarious purposes grows daily.
Turmoil has been a constant, though we’re really good at forgetting ‘bad stuff’ quite quickly. So, let’s first take you on a history tour, courtesy of our founder Peter Lee’s memories.
Peter was born in 1958. In his 66 years on this planet, he has seen times where things looked equally scary, with escalation a real possibility.
Do you remember the four Cold War decades where the world was divided into two opposing camps, each armed to the teeth with terrifying nuclear weapons, fighting proxy wars everywhere? Do you remember when people thought it inevitable there’d be a nuclear war, the rise of Mutually Assured Destruction? Peter well remembers going to live in London in 1983 thinking ‘this is ground zero if there’s ever a war’. Well, here we are some four decades on, and not one nuclear weapon has been used since 1945.
Do you remember when the US went through a decade of tumult, from the assassination of JFK, Robert Kennedy and Martin Luther King to Vietnam? The oil crisis, the quadrupling of oil prices? A time when everyone thought the collapse of the USSR and its ‘empire’ would be horrific, matched by an inevitable bloodbath in South Africa?
Much of what we feared didn’t happen, then or now.
Let’s turn from anecdotes to investment markets. Because they are the sum of what buyers and sellers believe is happening, they’re a good proxy for general sentiment. They reflect what is happening in the world, how firms are doing, and by extension how consumers are doing. So, what does the evidence show?
Our research partner, Mapua Wealth, together with Morningstar, have put together a fascinating graph – see below. It shows how the S&P500 index has done over the past century. This index of the largest 500 companies in the US is a pretty good guide to the health of the US and by extension, the rest of the developed world.
Importantly, it also shows a number of the key events which had an impact on markets, directly or indirectly. Many resulted in drops, but these have always been temporary.
