The History of War & Markets

The data Ari Van Gemmeren presents shows that every major armed conflict since World I has produced a positive 12‑month return for U.S. equities. The Dow jumped 88 % after the 1914 market closure, rose 10 % on the day Hitler invaded Poland, and posted roughly 3 % average gains across the post‑World II wars. Even the Gulf War’s brief dip was followed by a 29 % S&P gain in the subsequent year. The only systematic loss came from the 1973 Arab oil embargo, which combined an energy shock with a loose monetary regime.

Why does this pattern repeat? Markets are forward‑looking discounting machines; they price uncertainty long before headlines appear. When a war becomes certain, the ambiguity premium collapses, turning panic‑driven sell‑offs into rapid rebounds. Geography matters: wars fought abroad stimulate U.S. defense production, while domestic conflicts would destroy capital. Most corporate earnings—software, consumer goods, healthcare—are insulated from distant battles unless a conflict reshapes macro fundamentals such as oil prices or interest rates. The 1973 embargo and the 1990‑91 oil spike illustrate how a war‑induced energy shock, not the fighting itself, can hurt equities.

For investors, the lesson is simple: avoid reacting to the initial fear and focus on the underlying economic transmission. Behavioral over‑correction often creates an overshoot that patient holders capture as mean‑reversion. Exceptions arise when wars trigger sustained macro disruptions that central banks cannot absorb, as seen in 1973. Recognizing whether a conflict is merely a catalyst or a true driver of inflation, recession risk, or monetary tightening allows better asset allocation. In today’s geopolitical climate—whether the Russia‑Ukraine war or tensions in the Middle East—maintaining a long‑term equity position remains the statistically proven strategy.