Opinion | War Always Muddles Markets

Wars perplex investors. I’m always slow to react. Back in my days as a Wall Street analyst at

Morgan Stanley,

we would bus top investors around Silicon Valley to see





Jim Clark

at Silicon Graphics,

Scott McNealy

at Sun Microsystems and even

Steve Jobs

at NeXT. Breakfast on Aug. 2, 1990, was disrupted by news of Iraqi tanks rolling into Kuwait. Even though the 1990s proved to be paradise for technology, most investors rushed back to New York. The stock market dropped 6% over three days.

My office in Manhattan was next to Wall Street’s top oil analyst. That fall, he studied data from the world’s producers and spoke at Morgan Stanley’s morning meeting. Armed with tables and charts, he basically declared that world demand was X million barrels a day, but without Iraq, there was only Y amount of oil production, so prices were going to rise for the next decade. Sound familiar? I watched salesmen peel out of the room to call their clients. It turns out he was spectacularly wrong.

The rest of 1990 was awful. The market dropped 21% from its July peak to its October low. Fearing terrorists, few were flying. The economy went into a recession. Companies missed on earnings. Uncertainty hung over markets. On Jan. 16, 1991, the companies I was recommending with buy ratings, such as Intel and


reported awful earnings. That night, like everyone else, I watched Operation Desert Storm unfold on CNN. Still, I dreaded the next day’s morning meeting, where I would have to cut my earnings estimates and eat crow as my stock picks tanked.

As I got off the elevator, the head of sales grabbed me by the arm and started shouting, “It’s dawn in America. We’re shooting missiles right down chimney stacks. Cruise missiles are making left turns down city streets. The market’s going higher. Tech is king!” Sure enough, the market was up before the open. All my stocks were bid up 20% or more. Dawn indeed. It certainly cheered me up.

Markets during wartime are confusing. Baron Rothschild’s line about buying when there is blood in the streets and selling to the sound of trumpets is a great contrarian battle cry. Sometimes it works, often it doesn’t. Although I know some Russian banks today that you can buy real cheap.

The New York Stock Exchange closed from July to November 1914. Stocks dropped nearly 25% when they finally started trading on Dec. 12. With the uncertainty of the Great War, from late 1916 to early 1917, the Dow Jones Industrial Average dropped 40%. Meanwhile, New York displaced London as finance’s center of gravity.

You didn’t want to buy stocks after Pearl Harbor in 1941, not for another nine months anyway. You also didn’t want to sell on D-Day, or V-E Day, but you did in 1946 as the victory and rebuilding sunk in. The German stock market is another matter. The Germans froze it after the Nazi defeat in Stalingrad. When trading resumed in 1948, their stocks were down almost 85%. Keep markets open!

Sept. 11, 2001, cast a similar pall over the stock market. No one knew anything. Travel was restricted. Worse, the stock market closed for three days that month. Highflying dot-com stocks had crashed the year before, and a transition away from technology was already happening. The market went sideways until the Afghanistan and Iraq wars began. Finance and real estate led the market until both cracked in 2008.

Right now, the market is juggling many competing inputs: a war, a rebounding pandemic-weakened global economy, inflation and a supply-chain goat rodeo. We are seeing a rotation out of finance and consumer technology led by



and Apple into commodities, defense and consumer staples. A rotation was long overdue after all the bubbly tech IPOs and SPACs, but knee-jerk reactions are often short-lived. Oil prices, remember, were negative two years ago.

Markets hate uncertainty. Wars can end quickly or last decades. The low-tech conventional war in Ukraine could end tomorrow or turn into World War III. It’s tough to estimate 2023 earnings in that kind of environment. Many investors will simply sell and wait for the victory trumpets, though that is often too late.

Wars end. In the ’90s, the market started valuing the pending technology peace dividend right when those first cruise missiles launched. What will lead this time? Maybe we’ll see a resumption of the molecular-biology and genomics revolution that Covid and mRNA brought to the fore.

How will your portfolio react? Each war is different. Sometimes the big picture, like today’s inflation, overrides the details of battle. One certainty? Beware of experts; they are most often wrong.

Write to kessler@wsj.com.

Journal Editorial Report: Democrats face the severe political challenge of high energy costs. Image: Michael Nagle/Bloomberg News

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