What Investors Need to Know About Geopolitical Turmoil

Transcript

Ken Fisher:

So, I don't think there's ever a year where people don't do a little fritter about, "What about geopolitical risk?" "What about geopolitical uncertainty?"

Now, let me just say that's because people are always looking for justifications more on how stocks and markets should fall than they are for how stocks and markets should rise. And the reason for that, as behavioralists documented a good 30 years ago, is that, which we basically already knew, normal people hate losses much more than love comparable size gains. The average American hates a loss about two and a half times as much as they love a comparable size gain. And Western Europeans hate losses much more than that compared to gains. So therefore, there's a greater focus on how could things go wrong than focus on how might things go right? And in geopolitics, it's easy to see that there's lots of ways that there could be problems. Pretty much that happens as a potential every year, and we'll hear in the new 2026.

But I'm going to say to you that for the most part, what that does is builds the "wall of worry" that bull markets like to climb legendarily. Gives people things to worry about that keeps sentiment lower than it would be otherwise. And then when those bad things don't happen, that allows some upside surprise.

This year, a lot of those things could focus around all of the standard players conflicts between Ukraine-Russia, conflicts between—and the United States however it fits into that. Conflicts between the United States and China, India and Pakistan, obviously, Israel, Hamas, Iran and all of its satellites. Then when you think about all of that, and then of course, you know, other ones that seem to be new and unusual, like Venezuela and the things that President Trump says about Greenland, et cetera, et cetera, et cetera. So, when you think about all these, I'm going to make a blanket statement. As a heuristic, a rule of thumb, geopolitical stuff almost never creates bear markets unless it turns into world war.

Now, on the other hand, you can and will have geopolitical stuff when bear markets are happening anyway. The most recent example of something that was extreme geopolitical tension coincided with the beginning of a bear market was in 2022 as Ukraine-Russia evolved. But of course, that period which ended in the, depending on exactly where you were, a summer fall of 2022 and was not a very steep bear market. It was just barely big enough to become a bear market and not very long— almost like an oversize stock market correction as opposed to a bear market. It's kind of the exception that proves the rule that you do not get geopolitical turning into causality of bear market unless it translates into what the equivalent of a world war, and you only had a couple of those.

The fact of the matter is, world wars create bear markets because they basically truncate a huge amount of global trade. Without truncating huge amounts of global trade. How goods and services get moved around throughout the world, particularly goods, which is of course, less important now than it was 200 years ago, because services are three times the size of manufactured goods these days on a global basis within developed nations that the stock markets care about.

The fact remains, that what geopolitical stuff does, for the most part, is creates uncertainty. Now that can trigger into brief periods of volatility. But for example, I gave you the example of the coincident nature of Russia invading Ukraine as a bear market was starting. But when, for example, by contrast, the Israel-Gaza eruption occurred, stocks went straight up through that, just straight up through that, when many people feared that they wouldn't. I'm going to tell you that usually this stuff, at most, creates very short-term volatility and nothing more. So, for example, when most recently President Trump did a lightning fast invasion into Venezuela to capture Maduro, stock market never blinked. You can see a lot of these events that erupt, fade. You see the same thing exactly when President Trump bombed the Iranian nuclear sites. But you can see a lot of this stuff popping and popping, and zipping and zapping routinely. And at most, what it tends to create is short-term volatility, not a bear market.

So therefore, I don't think that's the part that you'd be putting most of your focus in as it relates to bear markets and stock market correction. Thank you for listening to me. Hi, this is Ken Fisher. Subscribe to the Fisher Investments YouTube channel if you like what you've seen. Click the bell to be notified as soon as we publish new videos.