Lessons from Past Military Conflicts

Download Full Report

This article was authored by: InvesTech

The escalation of the war in the Middle East is dominating the news, and investors are increasingly worried about the impact of this confrontation on the stock market. While investing through such a major regional crisis, there are three key considerations to keep in mind: 1. No one knows how long this volatile situation will last, or the extent to which it may evolve. 2. Disruptions to the energy market –whether it be production, distribution, or general flow– could continue to significantly impact oil prices. 3. The possibility of prolonged military action or even just higher energy prices when consumer confidence is already weak would increase the probability of an economic recession. Trying to anticipate and invest for a worst-case scenario has historically been an ineffective strategy. Yet proactively managing risk and adapting one’s portfolio as evidence unfolds has a solid track record in navigating many different periods of uncertainty. We’ve compiled examples of past crisis events to provide some historical context for potential market reactions. The table lists important military showdowns that have occurred since 1940, and it also looks at the market performance that followed. In most cases, these crisis situations have had only a transient impact on Wall Street. And the majority of the time, the S&P 500 saw gains over the next 12 months. The exceptions were 1940, 1941, 1973, 2001, and 2022 when bear markets were already in progress as the conflicts began. While any significant military action can be frightening, geopolitical disputes alone do not make or break the stock market. Ultimately, the first rule for investing through such events is “follow the weight of the evidence and don’t overreact.”