Something that I know I can remember now talking about being in college now this one I was in college for I think Steve would have been out I racks in Beijing to Kuwait happened in August of 1990. I was in college at that time The one day drop was 1.1% the total drawdown 16.9 It took 71 days to bottom and 189 to come back. So all of that happened again well within quite a bit less than a year Welcome to keen on retirement I show dedicated to helping you thrive before and during your retirement years If you are looking to grow and protect your wealth and want to make the second half of your life the best half then listen in as well The advisor Bill King and his host sort through the key issues that you need to know in a lively and candid way Hello everyone, Bill King here The discussion that you're about to hear is on how the US financial markets have performed during geopolitical events since World War 2 Steve Matt and I recorded the podcast last week just before Russia actually invaded Ukraine Due to the timing of the recording and the nature of the discussion being purely financial The tone of the episode does not reflect the tragic events that we have all seen play out this past week We still felt it important to release the podcast in its entirety as the information that we discuss is pertinent instructive and important to understand So as not to make knee jerk fearful reactions in your long-term financial plans and portfolios Although it does not take away from the heartbreaking humanitarian crisis that we are all witnessing Our thoughts and prayers are with all those impacted and with our world leaders for wisdom and guidance during this most difficult time Hello everybody and welcome back to keen on retirement I am your co-host Steve Sandesky and joining me in the hot seat today Bill kean matt Wilson let's talk about something that might seriously affect your financial situation And that's what's going on in the world these days. We've got the situation obviously in Russia, Ukraine We've got a lot of geopolitical things happening here So we thought this would be a good time to talk about how these types of events have historically affected the financial markets and what we should be doing What we should be thinking about that.
So matt, let me start with you Why don't you set some additional context here if you would yeah, we've been getting There's some questions some concerns about what the markets doing we've hit correction territory You know recently with the sell off in the markets and a lot of the headlines are Dominated by the situation with Russia and Ukraine. You know markets are reacting to it and the questions are What do we do should we be concerned? That's a common question when the market starts to become volatile And when it is a geopolitical situation, I think that does probably even provide a little bit more of a Concern feeling like is there gonna be the next world war that comes out of this and I like to put things In perspective from an investment standpoint So we're not trying to make light of what's going on with the situation with Russia and Ukraine And you know what can happen to that to the people over there What we're trying to do is just figure out what do we do from an investment standpoint and what does this mean because you know Is this the situation where we need to make portfolios more conservative or we need to adjust our allocation in such a way because of what's happening? And I think the best way to look at that is well How has the market performed from a historical standpoint based on different geopolitical events because as we all know This isn't the first time there's been a geopolitical event.
I don't think anyone disagrees with me when it comes to that, right? Well, that the problem is everyone knows how the others ended And you never know how the current one is going to end so that creates this fear and anxiety But that's with any correction that we're going through right? I mean who knew how covid would work out at least the market, you know, no one knew And so as we're going through these things folks feel The emotions that go along with some of the fear to your point the question is what do you do about it? If anything, that's right Let's kind of explore that thought process.
Well, what does this mean for the economic environment? Because that's what the market's based on, you know, stock prices are a function of corporate earnings Earnings, you know, it's a function of revenue And you know revenue is closely tied to gross domestic products, especially here in the US So you have to start thinking of it in that framework to really come back with okay. Yes. I don't like the volatility I don't prefer it not to be volatile But I understand this is not going to zero in that my cash is not going to be worthless So I just mentioned that you know that framework of okay What impact is this going to have on the economic environment because that would make me concerned as investor What's going to happen to my investments because if there's a consumer or there's a supplier or there's some sort of demand or You know function that is disrupted because of this well, then yeah, there's going to maybe be some investment decisions that have to be made or You know thought about regarding this, you know, when we think about that Where do you all think?
If there was some geopolitical event that was going to have the most disruptive economic impact Where do you think that would take place on us soil? I second that exactly understood my question great And we've got that we do have data that helps us understand what has happened in the past when situations happen on us soil most recent being The 9-11 terrorist attacks and I don't think many people Remember what happened from an investment standpoint kind of when that happened and post that happening I think of course everyone pretty much remembers where they were and what was going on during that time But they don't remember what was happening from an investment standpoint Now I know both of you were heavily involved in the financial markets at that time I was still in college because I remember where I was going to an economics class right when it was announced But 9-11 of 2001, you know, it was down significant I think it was down roughly 5% in one day. That's right Which this is a side note isn't necessarily the worst one day move the markets ever had you'd think it would be but it wasn't And the index total drawdown so from when The 9-11 attacks happened to where it finally stopped going down was down not even 12% it was 11.6% And if I recall it only took 11 days that to get to the bottom and let me tell you four of those days The market was closed. I don't know if any of you listeners remember that It's not very common that the market closes during a weekday less holiday, of course I think the last time it had happened before that was 1933 But the market closed on 9-11 and didn't reopen for I guess you would call it five business days It was closed for four additional days total drawdown from where that happened to that point was 11.6% And then the fascinating thing that I see put in here Matt was that it only took 31 days to get back to where it was Yes, 31 days.
So a geopolitical event that happened in US soil at the world trade center, which is kind of the financial hub Shut down the markets for let's say a week and they were back to where they were 31 days later Now if there was ever a time that you thought you should sell everything uncertainty was that an unbelievable high Would that have been the time potentially someone would have thought oh gosh I mean I probably when it opened After that, you know call it the fifth day I bet you it had to have been down significantly I guess it wasn't down much more than another 6% because we can see what the total drawdown was But it was probably down a lot because there was all these sellers that were pending for several days Right and for those of you that lived through which are probably most of you listening today We were just coming out of the dot com bubble Worldcom and in Ron were exposed arthur anderson was also exposed essentially helping them cook their books I guess you would say there was a high amount of uncertainty and we were climbing out of a tough market anyway And then planes flying into a building in the market closes Yeah, we're talking now about you know going through something we can all look back at it 20 years later and say wow Look at where we were and you know, I don't have this data right in front of me But matt do you happen to have where the Dow Jones was about that time? September 11, 2001, you know right around 8,900 9,500 in that range it was moving around but so under 10,000 yep, you know here we are today march of 2022 Going through rush of your crane uncertainty dows hanging around 33 4,000 in those ranges 20 years ago. We read you know call it 9,500 So just demonstrates some of the resilience here we've had another some other geopolitical events that we've documented here I think it's really interesting to bring it back and share some of those two with with our listeners and again a lot of our listeners Will remember some of these that you bring up the biggest significant event on us soil was the pro harbor attack December 7, 1941 one day market declined 3.8 percent The total drop from peak to trough was almost 20 percent It was 19.8 and it took the market 307 days to recover isn't that I mean just think about that we're having the beginning of a world war Major attack on us soil and the stock market is back to where it was before the attack started within a year If I were to believe actually Steve well it is and as we've talked about in previous shows It's like the market is going to respond to corporate profits Yes And so what is the war doing to corporate profits? Well if you go back to world war two We started massive industrial production as a result of the war and a lot of people went back to work Now obviously that's not a reason to start a war But it put the country back to work and many people say that was really the thing that ultimately put an end to the Great Depression Was the war and getting people back to work?
And I think we need to think about the same thing here today with what's going on in Russian, Ukraine It's like what impact is that going to have on the economy? Yes, it's going to have a terrible human impact And ultimately what's the economic impact and our concern here at the moment with this conversation is about the economic impact the investment impact And we're just trying to share what we know what history has told us We also know that past performance is no guarantee of future results, but it's the best that we've got Let's look at analogous situations in the past and see what inferences We might be able to make about the future about the present situation That's right when we talk about these drawdowns and the market volatility. I like to ask people down 10 percent This correction is this the start of the next down 40 percent and you know again We don't know we don't have a crystal ball, but we can put this in the context of What's going on in the economic environment and what causes recessions and Expansions here in the United States because if we're in a an expansionary time frame We would expect volatility to be short-lived and for it to recover Quicker versus if we're in a recessionary environment that volatility is going to lead to probably larger drawdowns and more drawn out Drawdowns meaning they're going to take longer to recover These geopolitical events they're almost there on the outside of what's going on in the economy You know you look at so many of them and so we've got some data from LPL and it goes back from Essentially the iranian general that was killed in airstrike in 2020 all the way to Pearl Harbor And they've got gosh. It looks like it's nearly 20 different geopolitical events on here The average one day drop was 1.2 percent the total drawdown average was 5 percent The recovery time frame so from once the market finally bottom to where it got back to even again was 47 days And I think it's important too to mention that the average as you're mentioning that it took to bottom from the event starting was only 22 days Now that's average.
I'm looking at things like you know something that I know I can remember now talking about being in college Now this one I was in college for I think Steve would have been out iraq's invasion of Kuwait happened in August of 1990 I was in college at that time. The one day drop was 1.1 percent the total drawdown 16.9 It took 71 days to bottom and 189 to come back So all of that happened again well within quite a bit less than a year actually Yeah, and I think one of the keys and you were you started to touch on this man I think this would be a good place to explore is what's the economic backdrop? As these geopolitical events are happening so what's where are we right now in terms of our economic situation that I think is going to help shed Some light on what the markets reaction ultimately might be to what's happening over in Europe exactly We're in an economic environment right now where the employment markets so we have Companies that are wanting to hire. I mean there's an outrageous number of job openings more and more people are getting hired every single month So we're continuing to add jobs in the US and the reason I talk about that so much is because Our economy in the United States is based on consumption you know 70 percent of GDP You know it's the goods and services that it's produced here in the United States Is what individuals spend their money on what I buy you know spend my money on same with you Steve same with you bill So if we have jobs and people are making more money wages are going up You have more money to spend that money spent shows up as revenue on corporate balance sheets Which then flows through the balance sheets and the statements and goes and shows up as earnings and stock prices are a function of earnings here in the United States So that's you know the simplistic kind of you, but that's really where it all starts If we have more jobs here in the US on a month over a month basis and even when we look at trends We're looking at six to 12 on trends from a job market standpoint Are we adding jobs or are we subtracting jobs and what direction is it headed because that gives us insight into where we believe the stock market might be headed?
So again as I mentioned we've got more jobs here in the US and wages aren't going up Yes inflation is going up too, but in wages are also going up in conjunction with inflation We also have like people not getting laid off either So that's the other aspect to it because you can look at okay We're adding jobs but on the back end are people losing their job in filing for unemployment and ways to measure that are these initial jobless claims And initial jobless claims are nearly as low as they were prior to the covid pandemic I mean that really shot up in march of 2020 April of 2020 Basically back to where we were prior to that. So that tells us that you know people aren't just getting laid off in the back end So we're adding more jobs, but you know the flip side may be subtracting them from other areas On a net net basis jobs are going you know going up other aspects to retail sales what people spend their money on a annualized basis The number in January they did just announced it came in at 3.8 Annualized and the expectation was 2% you to want to talk about it a healthy consumer healthy economy people are spending money Bill are you doing your part here on that? Yes, of course. Well, we are we're doing a little remodel with the house So that's going to be a little bit of capital and but it's always better than going out and buying a new home So I just try to relate it to what it could be, you know, so it makes it feel better Yeah, we're doing the same thing We just had a person in the house today to look at a bathroom remodel So we're remodeling the master bath and I think that's one of the categories Maybe you know this like a home improvement stores I think they're doing super well because a lot of people are remodeling current homes because buying a new home is so expensive Yeah, new construction is expensive and it's in high demand too because home building hasn't kept up with future demand because it Spelt off so much back in 2000 8 2009 with the aftermath of the housing crisis.
Well, yeah, things are progressing very well Yeah, they're not perfect. They never are perfect. I think the market yes It's reacting to the situation in Russia, Ukraine But a lot of it too still is the backdrop of what's going on with the federal reserve and the future for interest rates That is still front and center for a lot of investors It's not getting near the amount of headlines as it was prior to the situation with Russia But there's a lot of market dynamics that are probably being factored in with that One thing that is happening is while the market has been going down the odds of a significant rate hike in march have been changing Now doesn't mean there isn't one but for a period there there was market participants anticipating a 50 basis points or a half a percent rate hike in march now that that is pretty much said that's not gonna happen But also as the market has come down the odds of the Fed even doing two rate hikes have significantly come down as well So that kind of helps the Fed a little bit with some of the things that they're talking about with the market and economy being overheated You know some volatility maybe slows down a little bit of their desire to push rates higher Matt you say that that does maybe change their stance on this But we just talked about the consumer being very strong Do you think the consumer drops off as we see this volatility? I don't think so do you because you know We've talked on prior shows and other blogs and podcasts and the book that we've put out in the second edition You know the market declines on average 14 percent from peak to trough every year It's not anything that's atypical It's you know the reason that we associate with those pullbacks changes every year like the headline changes And we forget about what that headline was it ends up just being a very little small little blip on the long-term chart But do you think there's an issue with market volatility around this geopolitical turmoil and the fact that the consumer continues to just Drive inflation higher with demand is that an issue and the Fed still would have to act that makes it a little more difficult Does it help the fact you fall insane?
It almost like it complicates it well the fed if they think that maybe growth slows down a little bit just slightly I mean we're not saying that growth here in the us but also across the globe starts to moderate just slightly because of what's happening in that situation That maybe goes into the model saying okay Well, maybe our forecast for rate hikes is slightly less than where it would have been had this situation not happened That's right and you know what's funny about it is we're talking about it. Okay. Let's say it's a half a percent rate hike It's coming off of zero. Yes.
It's coming off of zero. No, it's not like we're we're in some traumatic High rate environment right now if they raise it if even they raised it a couple percent over the course of the next year or so That's right. Yeah, the rates that's not going to significantly change someone's desire to invest money because they're getting a quarter percent on their cash Versus 0% of the cash, you know, that's really not going to have that much of a change on it Again, that's part of why I've talked about even some of my market webinars that I believe the hype around rate hikes is a little bit overdone Market will get through the first rate hike and I believe we'll start to kind of see the volatility around the market Maybe start to moderate a little bit and again as we get more clarity through this situation with russian Ukraine I mean typically one thing that we've seen from a historical standpoint is as these a geopolitical events start as the invasion Occurs that is actually that almost nearly the low point the situation when it impacts the market You're seeing the height of it happening. That is typically the worst as it gets from a historical standpoint If I summarize what I hear you guys talking about here today So first of all we've got a significant geopolitical event happening over in russian ukraine We've seen that these types of things have happened throughout history So we've got data on how have the financial markets reacted to these things and what you guys have indicated for the most part Markets have an initial shock markets might sell off that then typically no guarantees, but typically they recover fairly quickly So that's point number one two.
What is the economic backdrop going on during the time of these geopolitical events? So matt you went through some of the data today. What does the economy look like? I think for the most part the economy still looks pretty good based on the data that we've got happening Right now and then I think the third piece we talked about was what's happening with interest rates Well, we do have the federal reserve which is put us on notice that interest rates are probably going to go up But I think the reality is we are still in a very accommodative Environment interest rates are super low.
Yes, they may be going up but they're going up from a very low base So how would you guys interpret those three things that I just talked about for maybe a final summary message here? As we've said before as recently as the covid situation We try to recommend folks moderate their news intake We all know that we're on a 24 seven news reel and a lot of the data that we receive is a repeat There's something about just continuously watching the news that can give us a real negative feeling about things And we don't think that's healthy for folks Yes, we want to stay in tune things are changing especially the situation that we're watching now play out But doing something dramatic to a long-term portfolio that is set up appropriately to fulfill someone's Life goals would be a mistake in my opinion other than some of those proactive moves that we talked about Over time as things lead to a bottom in the marketplace and then that recovery that we discussed So so succinctly earlier from all these other issues that we had talked about So I think if the takeaway today is don't abandon a long-term plan make a move that literally does have a dramatic impact on your family's situation By selling emotionally or selling without it being in the context of your long-term plan I think that's a great place to wrap up here bill and man So thank you as always for those of you listening you can get all of the details on the website at keenwealthadvisors.com We've got this episode. We've got many other episodes. We've got some outstanding educational blog posts So if you have questions about anything related to your financial situation check us out on the website Give us a call at keenwealthadvisors and we would love to have a conversation with you Please tell your friends and colleagues about this podcast as well.
So we put these out every two weeks We have a blog post that comes out on the alternating week So we are an education organization a financial planning a wealth management organization So this is your one-stop shop for all of your financial needs. So definitely check us out keenwealthadvisors again bill matt Thank you. Look forward to the next episode excellent steve. Thank you matt Steve sandusky and belay advisor are not affiliated with keen wealth advisors Opinions expressed by steve are his own and not necessarily the opinions of keen wealth advisors keen wealth advisors is an scc registered investment advisor Advisory services are only offered to clients or prospective clients where keen wealth advisors and its representatives are properly licensed or exempt from licensure No advice may be rendered by keen wealth advisors unless a client service agreement is in place This program is intended for informational purposes only and should not be construed as advice on or a recommendation of any particular investment Strategy or as tax or legal advice for your specific situation keen wealth advisors is not a tax or legal advisor to determine which investments may be appropriate for you Consult your licensed professional prior to investing information in this program was compiled from sources believed to be reliable due to the constant state of data changing We do not guarantee the timeliness or the accuracy of the information provided our view or opinions at the time you are listening to the podcast Maybe different than they were when the podcast was recorded past performance is no guarantee of future results any indices referenced for comparison are Unmanaged and cannot be invested in two directly any prices that are referenced for market forecasts are as of the date stated and are not necessarily our opinions moving forward As always, please remember investing involves risk and possible loss of principal capital This podcast is not allowed to be copied distributed published or reproduced without permission from keen wealth advisors