Stocktake: Stock markets can be counterintuitive

Ordinary investors could be forgiven for scratching their heads at the market reaction to a war few expected.

Yes, stocks have been volatile, but Europe's Stoxx 600 was ultimately flat in the week following Russia's February 24th invasion of Ukraine, while the S&P 500 enjoyed strong gains.

You can argue stocks were already oversold following earlier steep losses. You can argue modest European valuations might protect European stocks, as Goldman Sachs did last week. You can argue the damage to the global economy will be contained.

Or you can argue markets are underestimating the risks and that things will get hairier.

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All reasonable points, although perhaps the real lesson is simply that market reactions can be counterintuitive. Stocks enjoyed decent gains during the first and second World Wars; they recovered from 1941’s Pearl Harbour attack within a month; fell slightly during the Cuban missile crisis in October 1962, when the world appeared on the verge of nuclear war; and reclaimed their September 11th losses within two months.

Stocks do what stocks do. "And if the stock market is your biggest worry right now," adds Ritholtz Wealth Management's Ben Carlson, "consider yourself lucky."