Study: U.S. stock market investors shouldn't be too concerned about Turkish "contagion"


As you probably already know, Turkey’s currency is in crisis mode. Here’s the USD – Lira. The U.S. Dollar is going through the roof and the Turkish Lira is crashing.

Financial media loves to promote headlines about “contagion”. In reality, these sort of currency and foreign economic crises rarely really hurt the U.S. stock market in the long term. Fears of “contagion” are usually overblown.
In a few months time we will probably relegate “fears of Turkish contagion” to the dust bin, just like other “fears of contagion” in the past 25 years.

  1. Fears of “Greece contagion” began in late 2009. In reality, Greece didn’t lead to the disintegration of the EU and unravel the world’s monetary system.
  2. Fears of “Argentinian debt/currency crisis contagion” began in December 2001. The U.S. stock market fell, but mostly on Enron and other accounting scandals. The U.S. stock market’s decline was not caused by Argentina’s crisis.
  3. Fears of “Russian contagion” began in August 1998 during the Russian ruble crisis. The U.S. stock market made a “big correction”, after which it went right back up.
  4. Fears of “Asian contagion” began in July 1997 during the Thai government debt crisis. The U.S. stock market fell a little and then went right back up.
  5. Fears of “Mexican contagion” began during the Mexican peso crisis of December 1994. The U.S. stock market soared.

Here’s how the U.S. stock market (S&P 500) performed during the 1 year after these “fears of contagion” came out.


Click here to download the data in Excel

Conclusion

As you can see, “fears of contagion” are mostly overblown and don’t have a meaningful impact on the U.S. stock market in the medium-long term. These foreign economies (e.g. Turkey) are simply too small to have a meaningful impact on the U.S. and global economy.
Separate the signal from the noise. Turkey is mostly noise for U.S. stock market investors.
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