To those whose morning breakfast ritual involves reading or watching the news: my condolences. The usual sleepy, summertime news cycle has seen a rash of explosive incidents that have unsettled our digestion and cast a shadow over this supposedly sunny season.

Upcoming travel plans include trepidation after a civilian jetliner was shot down over Eastern Ukraine. Powdered sugar on your French toast doesn’t seem sweet enough to overcome the renewal of our soured relationship with Mother Russia. Another Israeli invasion of Gaza is enough to question whether you might need something stronger than cream for your coffee—Kahlúa, anyone?

The list goes on and on: continued unrest in Libya; civil wars in Syria, Afghanistan, Iraq and Somalia; festering Islamist insurgencies in Nigeria and Mali; further faltering of failed states like Pakistan, Sudan and Yemen. When members of the former axis of evil,” North Korea and Iran (whose nuclear threats remain undiminished), are only footnotes of concern, I think we can all agree that we are experiencing some turbulent times.

Markets Calm in Face of Global Turmoil

Strange as it might seem, recent tumultuous events do not seem to have had a corollary effect on financial markets or equity pricing. In fact, Q2 was yet another good quarter marked by little volatility. U.S. large-cap stocks (the S&P 500) were up 5.2%¹ while non-U.S. stocks (the MSCI EAFE) were up 4.1%.²

Certainly, war and extreme violence can be very disruptive to any particular economy. But since World War II, military confrontations have generally occurred in areas less important to the global economy. Even when aggregated, the war-torn countries simply do not cover a huge footprint of the global financial landscape (other than through oil production). Consider the following stats on current war-torn countries³ as a percentage of the global sum:⁴

Since World War II, military confrontations have not generally been associated with any prolonged, negative impact on stock prices. The Soviet invasions of Hungary and Czechoslovakia did not lead to a severe market reaction, nor did the outbreak of the Korean War or the 1967 Arab-Israeli Six-Day War. Separately, markets were not adversely affected by the Falklands War, martial law in Poland, the Soviet war in Afghanistan, or U.S. invasions of Grenada or Panama. The market decline in 1981 was more closely related to a double-dip U.S. recession and the anti-inflation policies of the Volcker Fed than war. The Arab-Israeli war of 1973 was an exception, as it led to a Saudi oil embargo, the quadrupling of oil prices and an energy crisis in the U.S., which in turn contributed to inflation, a severe recession and a sharp equity market decline. Yet overall, the variegated nature of our standard economic cycle has been a significantly more important factor for investors to follow than national hostilities.

1 – Data provided by Standard and Poor’s, Inc.
2 – Data provided by Morgan Stanley Capital International, Inc.
3 – Afghanistan, Democratic Republic of the Congo, Central African Republic, Colombia, Palestinian Territories, Iraq, Israel, Kenya, Libya, Mali, Nigeria, North Korea, Pakistan, Somalia, Sudan, Syria, Ukraine, Uganda and Yemen.
4 – Sources: IMF, United Nations, BP, MSCI, Bloomberg, BIS, World Bank, WTO as of July 21, 2014.