War and the Stock Market: The Shocking Truth No One Tells You

When headlines scream “war in the Middle East” or “major powers on the brink,” investors' first instinct is often to panic. Oil prices spike, global leaders scramble, and the world holds its breath. But what does history tell us about how stock markets behave when major geopolitical crises hit—especially wars that could shake up global oil supplies or power balances?

Let’s dig into the numbers and see what the past has to say. The results might surprise you.

 History’s Playbook: How SPY Reacted to Major Crises

Here’s a look at how the S&P 500 ETF (SPY)—a popular proxy for the U.S. stock market—performed during some of the world’s most dramatic crises of the past few decades:

Crisis Event	Date of Crisis	SPY Before	SPY 5 Days Later	Change (%)	SPY 1 Month Later	Change (%)
Gulf War Begins (Iraq invades Kuwait)	02-Aug-90	$36.08	$33.81	-6.30%	$33.00	-8.50%
US Invades Iraq (Iraq War)	20-Mar-03	$85.18	$86.38	+1.40%	$90.41	+6.10%
Russia Invades Ukraine	24-Feb-22	$428.14	$437.84	+2.30%	$452.23	+5.60%
Iranian Attack on Oil Tankers	13-Jun-19	$289.80	$292.85	+1.10%	$297.81	+2.80%
Israel-Gaza War 2023	06-Oct-23	$430.54	$431.20	+0.15%	$448.44	+4.20%

 

What Patterns Do We See?

1. Initial Jitters, Then Calm
• Markets often react with a brief dip or increased volatility in the days immediately following the outbreak of war or crisis (see Gulf War 1990).
• In most cases, however, stocks bounce back within weeks—sometimes turning positive in just a month.
2. Oil and Geopolitics: Temporary Shocks
• Major Middle East wars typically cause oil prices to surge, sparking fears of inflation and recession.
• Yet, unless the conflict spreads or triggers a broader economic slowdown, markets soon refocus on fundamentals and recover.
3. Why the Rebound?
• Markets tend to “price in” worst-case scenarios quickly—so once the initial panic subsides, investors often realize the world isn’t ending and buy the dip.
• Defense, energy, and select industrials often benefit, offsetting declines in other sectors.

Why Isn’t War Always Bearish for Stocks?

• Economic Context Matters: If the global economy is healthy, markets usually weather shocks better.
• Global Central Banks React: Policymakers are quick to reassure markets, inject liquidity, or cut rates if needed.
• Corporate Earnings Still Drive Returns: Unless war directly disrupts U.S. business, long-term investors often look past the noise.

 What About the Current Israel-Iran Escalation?

While history never repeats exactly, the closest parallel is the Gulf War (1990)—a major state-to-state Middle East conflict with huge oil implications. Then, markets dropped sharply at first but began to recover as fears eased.

Bottom Line: War Brings Volatility—But Rarely Lasting Bear Markets

War is, of course, a human tragedy first and foremost. For investors, it’s a reminder of the value of staying calm and taking a long-term perspective. History shows that even in the face of frightening headlines, markets are remarkably resilient—and sometimes, war is not as bearish as we might expect.

Key Takeaway:

While war shocks the world—and the markets—at first, history shows that stocks often rebound within weeks, and sometimes even rally. The lesson: don’t panic, and let history be your guide.

Stay figgy,

The Figured Figs Team 🌱

Disclaimer: “This article is for informational purposes only and does not constitute financial, investment, legal, or tax advice. Readers are encouraged to consult a licensed professional before making any financial decisions."