Sell first, ask questions later? What war does to the stock markets

An attack. An invasion. A conflict that escalates. Many investors' first reflex is the same – to sell, and to do so as soon as possible. But is that really the smart move? The facts tell a different story, one which is far more encouraging than the headlines suggest.

When war breaks out or another geopolitical hand grenade goes off, the markets react more or less the same way every time. Share prices fall, investors flee to safe havens such as gold and government bonds, and the word 'uncertainty' dominates the financial news. This pattern is as old as the stock markets themselves.

Yet the initial shock is only half the story. An historical analysis of the S&P 500 – the world's largest stock market by market capitalisation – shows a striking pattern. The market usually falls when a conflict breaks out, reaches a low point after a few weeks, and in most cases recovers its losses within one to two months (source).

From the attack on Pearl Harbour to 9/11 and Brexit, close to thirty major geopolitical events have taken place since 1939. A week after such events began, the S&P 500 was down -1.1% on average. After one month it was -1.4%, after six months +3.5% and after twelve months +6.4% (source).

History has taught us that after a crisis comes a recovery

Looking back at a few specific events confirms that idea in many cases. However, there are some exceptions.

• Second World War and Pearl Harbour – The most devastating war in modern history undoubtedly left deep scars on the financial markets. Nevertheless, the markets showed remarkable resilience as the outcome of the conflict became clearer. Economic growth, military production and post-war reconstruction gave stock markets a new boost.
• Cuban Missile Crisis (1962) – The world and the markets have never been closer to a nuclear catastrophe. The S&P 500 initially lost ground, but prices fully recovered in a few weeks once the situation had de-escalated. Twelve months after the crisis broke out, the index had climbed 26.9%.
• Arab-Israeli war and oil embargo (1973) – The OPEC oil embargo, in response to Western support for Israel, was one of the heaviest blows ever endured by the energy markets. The oil price quadrupled, inflation soared and the S&P 500 lost more than 35% in twelve months. It took six years for the market to return to its previous level. This was no typical geopolitical shock, but rather lasting disruption to the economic fundamentals.
• Gulf War (1990) – Iraq's invasion of Kuwait impacted the markets during a recession, exacerbating the harm being done, as the S&P 500 lost over 16% at one point. However, a recovery followed here, too, as a large number of uncertainties were soon resolved. Twelve months after the outbreak of the war, the S&P 500 was 8.9% in the green.
• Attacks of 11 September 2001 – After the stock exchange remained closed for several days, the S&P 500 fell by nearly 5% in the first week of trading. Nevertheless, the index had recovered its losses in full after a few months. While the attacks had a huge human and psychological impact, they did not structurally change the economic fundamentals. The S&P 500 closed 16.7% in the red one year after the attacks, as the period coincided with a recession and the collapse of the dotcom bubble.
• Arab Spring (2011) – The wave of political upheaval in North Africa and the Middle East drove up oil prices on a short-term basis, but the impact on Western stock markets remained limited. Twelve months after the start of the Arab Spring, the S&P 500 was up 1.8%.
• Brexit (2016) – The result of the referendum surprised the markets and increased volatility. The British pound plummeted, and European stock markets initially fell sharply. Globally, however, most indices recovered within a few weeks, as it became clear that the economic damage would be more limited than first feared. Twelve months after the referendum, the S&P 500 was up 16.7%.
• Russian invasion of Ukraine (2022) – This conflict has had a significant impact on the energy and commodity markets. The S&P 500 climbed in the first few months after the conflict broke out, only to lose 5% twelve months later. Since the start of the war, the S&P 500 has risen by more than 50% (situation as at 26 March 2026).
  
  The events in bold coincided with a recession. Source: Deutsche Bank Research Institute, 4 March 2026

The common thread is that business results are what matters, and geopolitics is often just noise

This remarkable resilience can be explained by the fact that the stock markets look ahead and try to estimate the amount of profit companies will make in the future. However dramatic, wars and geopolitical events rarely disrupt corporate earnings in themselves –

but that doesn't mean that every conflict unfolds in the same way. Conflicts that coincide with a recession or disrupted energy supply often leave deeper marks. As an example, the Arab-Israeli war of 1973, combined with the OPEC oil embargo, led to a profound, long-lasting decline on the markets.

The ongoing Iran conflict therefore has characteristics that should cause investors to be extremely vigilant. It is exactly this sort of scenario that, historically speaking, has weighed heavily on the markets. When a conflict structurally disrupts energy flows, fuels inflation and changes the path set by central banks, corporate earnings and growth prospects may come under pressure. And that makes the current situation more dangerous than a 'typical' geopolitical shock.

What does this mean for investors?

Investors who sell at the emergence of every geopolitical shock tend to miss the recovery. Long-term returns are ultimately determined by corporate earnings and companies' financial health, rather than by geopolitical headlines. At the same time, the current conflict still has no clear end in sight. The energy market is the significant driving force behind the financial markets at this time. How long the conflict and the blockade will last and how significant the long-term damage to energy supplies will be are likely to be two key factors for the stock markets. Disruption to energy routes can be resolved relatively quickly, meaning volumes can also be restored in a fairly short time. If more and more energy infrastructure is destroyed in the near future, however, the effects could be felt for years to come, irrespective of how quickly the war ends.

The challenge facing investors is not so much predicting the markets' reaction to the latest headlines, but ensuring their portfolios are not overly exposed to extreme scenarios. In specific terms, this means broad diversification across sectors and regions, with a particular focus on high-quality companies with strong balance sheets. And above all, having a healthy dose of patience. Before investing, be sure to read up on the key features and risks of financial instruments.

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