Stock Markets during the second World War (2024)

"Then in May 1942, just before the United States’ military fortunes in the Pacific improved, in the midst of the gloom and the bargains and at the point of maximum bearishness, the U.S. stock market made a bottom for the ages."

Barton Biggs

Wealth, War & Wisdom, 2008

Barton Biggs was probaly one of the finest mind on Wall Street. As an investment srategist, he had great respect for marketsand their many pitfalls, andhe never succumbed to the "doom and gloom" syndrom or to the "madness of crowds" trap.

In his book "Wealth, War and Wisdom", Barton Biggs analyses equity markets behavior during the key events of World War II; and the results are truly fascinating, as you can see in the charts below:

"In occupied Europe during World War II, all things considered, gold was the best asset to hide in, preserve wealth, and maintain some liquidity. Stocks, land, real estate, and businesses worked only if you had a very long-tern horizon. The black market was the most lucrative profession."

"It’s interesting how well the stock market performed after mid-October in spite of another avalanche of very bad war news (…) it must have sensed the rising odds of the United States being drawn into the war. Another example of the wisdom of markets. (…) The war news was consistently bad, but nevertheless stocks worked higher."

"(…) the U.S. stock market instinctively understood the significance of Midway, well before expert opinion or the conventional wisdom grasped its importance."

"(…) the bottom of a bear market by definition has to be the point of maximum bearishness, and from that point, the news doesn’t actually have to be good, it just has to be less bad than what has already been discounted in prices."

"In late 1939, however, well ahead of the Blitzkrieg stock prices began to anticipate the overwhelming victories of 1940."

"By 1940 and throughout 1941 the German economy was booming from military production. (…) The interesting insight is that by the late fall of 1941, the Berlin market was somehow sensing that Hitler’s luck, his infallibility were fading and that Germany’s military momentum had crested. (…) Did anyone know the tide had turned except the stock market? Certainly a few of the generals suspected."

As an expert in financial markets and historical market behavior, I possess a deep understanding of the nuances and intricacies of how geopolitical events intersect with stock market dynamics. Barton Biggs's "Wealth, War & Wisdom" from 2008 delves into the fascinating correlation between World War II events and their impact on the stock market. Biggs, a respected investment strategist on Wall Street, offers valuable insights into market behavior during this tumultuous period.

The article you provided contains several key concepts related to the intersection of historical events, market psychology, and investment strategies. Let's break down the concepts mentioned in Barton Biggs's quotes:

Market Bottoms During War: Biggs highlights the occurrence of significant market bottoms during World War II, such as in May 1942, coinciding with improvements in the United States' military fortunes in the Pacific. This emphasizes how markets often react to geopolitical events, sometimes anticipating positive outcomes before they materialize.
Market Perception vs. Reality: Despite negative war news, the stock market showed resilience and upward movement, indicating that markets can sometimes predict or react differently from expert opinions and mainstream perceptions. The market's ability to sense crucial turning points, like the significance of Midway, before general acknowledgment, underscores its foresight.
Anticipation and Reaction: Biggs discusses how stock prices anticipated the Blitzkrieg victories in late 1939 and how, by late 1941, the Berlin market sensed the waning of Hitler's military momentum before it became widely acknowledged. This demonstrates the market's ability to anticipate future events based on available information.
Asset Allocation During War: Biggs touches on the importance of asset allocation during wartime. While gold was seen as a reliable asset for wealth preservation and liquidity in occupied Europe, other investments like stocks, land, and businesses were viable for those with longer-term horizons.
Market Sentiment at Bear Market Bottoms: The concept of the bottom of a bear market being the point of maximum bearishness is highlighted. Biggs notes that after this point, the news doesn't necessarily have to be good; it just needs to be less bad than what has already been accounted for in prices.

These concepts collectively portray the market's complexity, its ability to discern critical turning points amidst chaos, and its forward-looking nature in anticipating future events. Barton Biggs's observations underscore the interplay between historical events, market psychology, and investment strategies during times of war and significant geopolitical upheavals.