A Historical View of How the Stock Market Reacts to Military Conflicts
- Vince DeCrow
- Mar 11
- 3 min read
Updated: Mar 11
As tensions between the U.S./Israel and Iran bubbled up to military conflict in late February, it began raising questions from investors about economic implications. This time, the focus is geared towards potential inflationary impacts if the conflict’s disruption to global oil supply becomes prolonged.
When military conflicts break out, it’s typical for stock market volatility to rise amid initial fear and uncertainty. Yet, history shows that market pullbacks resulting from geopolitical military conflicts are typically short-lived and have minimal impact on long-term stock market performance.
This historical pattern serves as a practical lesson for long-term investors.
Short-Term “Blips”, Long-Term Resiliency
There have been 23 major armed military conflicts since World War II (not including the current conflict). The S&P 500 index has delivered a negative price return over the following three months of conflict breakout in 57% of those cases [1]. When including all 23 cases, the average subsequent 3-month performance of the S&P 500 was -1.1%.
However, in 73% of the armed military conflicts since World War II, the index has generated positive price performance over the subsequent year and even greater consistency in positive price performance over the subsequent 3, 5, 7, and 10-year periods.
The Lesson
Markets don't fear war. Rather, it’s investors that naturally fear uncertainty. When uncertainty from military conflicts arise, volatility in markets that follow have historically been mere “blips” that don't end up having much bearing on longer-term outcomes. As uncertainty eventually subsides, markets pivot back to being driven far more by earnings, fundamentals, and broader economic conditions.
Although the duration, intensity, and exact outcome of the current conflict are still unclear, the market's historical track record consistently rewards those who maintain discipline during periods of elevated geopolitical tension.
Investors who have historically fared the worst during geopolitical crises are not those who held their nerve, but those who sold into uncertainty, locking in losses and missing the recoveries that followed.
None of this diminishes the human cost of conflict, but for investors seeking to manage their portfolios through turbulent times, the historical record offers clear guidance. Diversify broadly, stay invested for the long-term, and resist the impulse to treat geopolitical headlines as a signal to retreat and stash cash.
Footnotes
[1] Data Source: Morningstar, Ned Davis Research, and Hartford Funds, 3/26.
Disclosures
RISE Investment Management, LLC ("RISE" or "RISE Investments") is an investment adviser registered under the Investment Advisers Act of 1940. Registration of an investment adviser does not imply any level of skill or training. This publication is solely for informational purposes and past performance is not indicative of future results. Any description of products, services, and performance results of RISE contained in this publication are not an offering or a solicitation of any kind. No advice may be rendered by RISE Investments unless a client service agreement is in place. Advisory services are only offered to clients or prospective clients where RISE Investments and its representatives are properly licensed or exempt from licensure. All of the information in this publication is believed to be accurate and correct as the date set forth. RISE does not have or accept responsibility or an obligation to update such information. Please note, this article is for education purposes and should not be treated as tax or legal advice. This article is not a substitute for legal or tax advice from your professional legal or tax advisor.