Stock Market Reaction to War and Crisis Events
Stock markets around the world have been falling in recent days as uncertainty grows around a potential Russian invasion of Ukraine. We don’t want to be insensitive when the possibility of war is on the table, but we thought it may help investors to take a look at how historical geopolitical crises have impacted stocks. Market reactions to war and crisis events can be tricky and hard to quantify. It is important to remember that each one is different, happening under different market and economic conditions with different factors at play. If we look at past market reactions, you will see that returns differed by event but were largely unaffected.

- From the start of World War I in 1914 until the war ended in late 1918, the Dow was up more than 43% in total or around 8.7% annually.
- World War II had a similarly counterintuitive market outcome. From the start of WWII in 1939 until it ended in late 1945, the Dow was up a total of 50%, more than 7% per year. So, during two of the worst wars in modern history, the U.S. stock market was up around 100%.
- The Korean War began in the summer of 1950 and ended in the summer of 1953. In that time, the Dow was up an annualized 16%, or almost 60% in total.
- U.S. troops were sent to Vietnam in March of 1965. The Dow would finish the remainder of that year up almost 10%. By the time the last of the U.S. troops were pulled out of Vietnam in 1973, the stock market was up a total of almost 43% in that time, or just under 5% per year.
- The Cuban Missile Crisis had the world on the brink of nuclear war in October of 1962 when the U.S. faced a standoff against Russia. The confrontation lasted 13 days. In that two-week period, the Dow remained surprisingly calm, losing just 1.2%. For the remainder of that year, the Dow would gain more than 10%.
- The terrorist attack on Sept. 11, 2001 saw stocks fall sharply, down almost 15% in less than two weeks following the tragedy. The economy was already in the middle of a recession at that point, and stocks were in a free fall from the bursting of the dot-com bubble. But within a couple of months, the stock market had made back all of the losses that occurred in the aftermath of 9/11.
- The U.S. invaded Iraq in March 2003. Stocks rose 2.3% the following day and finished up the year with a gain of more than 30% from that point on. It is important to note these gains were coming off the brutal 2000-2002 bear market.
These are all very well-known events but I could go on and on with events that seemed very serious at the time but are barely even remembered at this point. (Remember Russia/Ukraine/Crimea in 2014, Brexit in 2016, or US airstrikes killing Iranian General Soleimani in early 2020?) The point here is the market’s reaction to war and geopolitical crises can be counterintuitive. Markets don’t always respond to geopolitical events the way you think. How many of us would have thought that the previous wars & geopolitical events mentioned above were great buying opportunities?
Could this conflict be different? Absolutely. However, anytime I start to think that this time is different, I remember one of John Templeton’s timeless 16 rules for Investment Success (published in 1933): “The investor who says, ‘This time is different,’ when in fact it’s virtually a repeat of an earlier situation, has uttered among the four most costly words in the annals of investing.”
Bottom Line: We do not know what this Russia / Ukraine conflict will mean for markets or the world at large, but here is what we do know. Making big changes to your investment strategy now, during periods of heightened fear and volatility, is probably not a great idea. Changing strategies or asset allocations in response to risks that seem certain may make you feel better for a short while, but it is almost never a good long-term idea.
As always, please give us a call if you would like to discuss your investments and/or your financial plan.
- Brett