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Curo Client Letter: War and a History Lesson

November 08, 2023

“The only thing new in the world is the history you don’t know.”

        -  Harry Truman

One of the most challenging things about investing is that the markets are shockingly unemotional when it comes to human tragedy.  This is the case whether the tragedy is caused by a natural disaster or war, and the Israel/Hamas war is no exception.  Despite the unspeakable human tragedy, the markets typically focus on the economics, and the economic impact is likely to be largely confined to the region, with marginal effects on commodity prices and monetary policy. 

When considering today’s challenging environment, it is a natural human reaction to think “this time is different”.  Our view is that in the long run, the market prices of shares of some of the best companies in the world (we are referring to the S&P 500 here) are a direct function of their future earnings, dividends, and cash flows.  And, that this too shall pass.  Because October 2023 marks the fiftieth anniversary of October, 1973 – arguably one of the worst months in American history - we thought it would be helpful to put the current events into historical context. 

Before we enter a history class, let’s jump ahead to some highlights from the class’ end:

  • From 1973 to today, the S&P 500 has halved three times
  • From the top in early 1973, the S&P 500 is up about 35 times
  • Cash dividends rose about three times more than inflation did
  • Compound annual returns to date are almost exactly the historical 10%

Now, let’s recount the events of the catastrophic month that was October of 1973.

October 6: on Yum Kippur, the most sacred day in the Jewish calendar, a coalition of Arab states led by Egypt and Syria – massively supplied and supported by the Soviet Union – launched a war of extermination against Israel.  Within days, it clearly became a proxy war between the U.S. and the Soviets – the two thermonuclear powers capable of wiping out humanity.

October 10: As the Watergate matter came closer and closer to the Oval Office, on this day the Vice President of the United States walked into a federal courthouse in Baltimore, pleaded no contest to one felony count of federal income tax evasion, and resigned his office.

October 19: Responding to America’s virtually unlimited resupply of Israeli forces, Arab members of the Organization of Petroleum Exporting Countries (OPEC) embargoed the sale of oil to the U.S. Americans were forced to endure long lines at the gas pump while prices rocketed higher.  By the time the embargo lifted in March 1974, the price of oil had quadrupled.

October 20: Under subpoena for the tapes of his meetings with aides regarding Watergate, President Nixon ordered Attorney General Richardson to fire Watergate Special Prosecutor Archibald Cox; Richardson declined to do so, and resigned.  The order was then given to the Assistant Attorney General, who also declined to carry it out, and was fired.  Solicitor General Bork finally executed the order, and the event set off a firestorm in the country.  This was America’s most serious constitutional crisis since the Civil War. 

October 25: America awoke to find that during the previous night, the U.S. military and its nuclear force had been placed on a global alert (DEFCON 3).  It turned out to be a well-placed warning to the Soviets not to escalate any further in the Middle East, but that morning, the American citizens did not know that.

From there, everything got worse, but surprisingly the S&P 500 was only down about 10% from its peak the previous January.  The stock market would continue to decline, however, and would not bottom until a year later on October 4, 1974 at a low of 62 (this represented a decline of 48% from peak to trough). 

While it’s true that many of us don’t remember 1973’s political/economic/financial catastrophe, we do remember some of the subsequent disasters:

  • The Crash of 1987
  • Implosion of the dot-com bubble, Enron, and the accounting scandals from 2000-2002
  • The Global Financial Crisis from 2008-2009
  • The Greece/Europe debt crisis in 2011
  • The COVID global economic lockdown in 2020
  • Nine percent inflation and the Federal Reserve’s steepest and fastest rate hike in the 110-year history, beginning in 2022

Our goal in sharing this history lesson is to remind you that the apocalypse du jour will inevitably get resolved.  This too shall pass, as it always has.  May we suggest instead of worrying about your portfolio that you hug your loved ones.  That is a much better use of your energy and time.

Thank you for the opportunity to serve you and your family.  We appreciate your trust, and it is our honor to support you.  As always, if you have any questions, feel free to reach out.


Best wishes,

Anne & Atricia, your “A-Team”