How Does War Impact Equity Markets?

Geopolitical shock has been driving financial markets since the US and Israel launched attacks on Iran at the end of February. Energy prices spiked, as did stock and bond market volatility, amid Iranian strikes on Israel and the oil-rich Gulf nations, and the de facto closing of the vital Strait of Hormuz to international shipping.

When headlines turn to war, concerns about economic disruption, energy supply and financial stability often come to the fore. History, however, suggests that the relationship between war and long-term equity performance is more nuanced than initial market moves might imply (Display).

Markets Tend to Stabilize Over Time

Looking across eight major conflicts over the past five decades, the S&P 500 was often volatile around the outbreak of hostilities. In several cases, markets fell in the initial days and weeks, reflecting uncertainty about the duration and potential economic spillover. Yet stocks frequently stabilized—and in many instances recovered—over longer horizons. On average, one year after the onset of conflict, the S&P 500 was up 7.0%, underscoring the market’s capacity to look through geopolitical shocks.

These historical observations come with some caveats. The sample size is small and each conflict unfolded within a unique macroeconomic and market backdrop. Some wars coincided with recessions or financial imbalances that amplified their impacts on asset prices. Others occurred during periods of economic resilience, allowing markets to absorb the shock. As a result, averages can mask meaningful dispersion in outcomes.

Distinct Risks in Current Environment

The current war started with distinct risks. Global growth and financial conditions were already fragile, while equity valuations were stretched by AI-driven market concentration. Now, a prolonged disruption in energy supply could fuel inflation, disrupt global central bank monetary policy, hurt economic growth and weigh on corporate margins. Equity markets may struggle to shrug off today’s geopolitical stress as easily as in the past. Conversely, a swift end to the war could quickly alleviate market pressures.

Ultimately, we believe long-term equity returns are driven by earnings and the durability of business models, not by geopolitical events. For investors, the challenge is less about predicting market reactions to headlines and more about ensuring portfolios aren’t overly exposed to extreme adverse outcomes. Maintaining diversification, stress-testing exposures and emphasizing high-quality companies can help equity portfolios navigate periods of heightened uncertainty with confidence and position strategically for recovery when markets stabilize.