Why the Explosion in Beirut Didn’t Shake Markets

By Matt Salm, Investment Analyst

Several weeks ago, I wrote about how unrest in America didn’t move the markets despite being of societal importance. The reason? “The stock market is a mechanism for valuing what a publicly traded business is worth.” For many businesses, the unrest didn’t affect their valuations.

This week’s column strikes a similar tone. Footage of a massive explosion in Beirut rapidly made its way around the world this week, garnering a huge amount of international attention. The blast in Lebanon’s capital killed over 150 people; injured more than 5,000; and left hundreds of thousands of people homeless.

The stock market’s response? Nonexistent. Why? Catastrophes and tragedies that don’t directly impact the health of the American economy or the earnings of American companies don’t have the power to move the S&P 500 or the Russell 2000 indexes.

These events still have a very real human cost. International support of some form is needed to help the survivors. But the explosion in Beirut isn’t the first catastrophic event to go unnoticed by major markets, and it won’t be the last. Given that only 2.4% of revenues for listed American companies came from all of the Middle East and Africa last year, it makes sense that positive or negative developments in those regions don’t help or hinder American markets.

But here’s what may be surprising: even if the explosion had more directly affected the U.S., it still wouldn’t have hurt long-term stock prices. If the stock market takes a sizeable hit following a catastrophic event or the start of a war, it’s not likely that the dip will last long. “After the September 11, 2001, attacks, Iraq’s invasion of Kuwait in 1990, and the use of American ground troops in Cambodia in 1970… the U.S. equity index returned to its pre-selloff level within less than a month,” notes Mike Bird of the Wall Street Journal.

The takeaway: no matter how important the news is, it’s unlikely to affect U.S. markets unless it clearly alters current or future economic or business conditions.

7 views0 comments

Recent Posts

See All

Recapping The Trump Years Through A Markets Lens

By James Picerno, Director of Analytics The 45th president’s term ends today, putting a fork in one of the most turbulent periods in American history to rest. As the nation prepares for the Biden era,

Is Your Index Tracking ETF Overweight(ed)?

By: Andrew J. Willms President and CEO of The Milwaukee Company Frequent readers of my contributions to this newsletter know that as a general rule I prefer investing in low-cost, passively managed ex

Is the Stock Market Too Expensive?

By: Andrew J. Willms President and CEO of The Milwaukee Company I recently had the pleasure of speaking to a former college instructor of mine about his investments. I shared my thoughts about the ad

Good Company for Your Investments™

Phone: (262) 238-6980

Fax: (262) 238-6999

414 N Main St, Thiensville, WI 53092, USA

  • YouTube
  • Spotify

©2020 by The Milwaukee Company