Chart of the week

You wouldn't think it, but..

What does this chart show?

Since the terror attack in Israel on October 7, 2023, the MSCI Israel Index, as proxied in the chart by the EIS ETF, has outperformed the S&P 500 and NASDAQ-100 in total return.

Why does it matter?

Geopolitical risks are always abound but:

1. If you knew what would happen ahead of time, achieving a positive outcome would still be extremely difficult given the unintended second-order consequences of these events.

2. Historical study of geopolitical conflicts since 1940 demonstrates that market impacts tend to be localized and short-term in nature (~3 months impact historically, and also consistent in this chart)¹. Diversification and a long horizon guards against this.

The Bottom Line

In aggregate, geopolitical events have not been a primary driver of equity market returns². Timing markets and/or making investment decisions based on perceived or actual geopolitical risks will likely produce suboptimal outcomes.

1. J.P. Morgan - How do geopolitical shocks impact markets?

2. Not That 70's Show by Michael Cembalest