What Happens to the Stock Market in Times of War?

Research shows that many war-related dips tend to be short lived, and at times, markets deliver above-average returns during times of conflict.

A trader works on the floor of the New York Stock Exchange (NYSE) at the opening bell in New York City, on April 2, 2025. Charly Triballeau/AFP via Getty Images

The stock market climbed to near-record highs following President Donald Trump’s announcement of a cease-fire between Iran and Israel. The move came after Iran retaliated by launching missile strikes on a U.S. airbase in Qatar, which left no casualties. Market experts saw this as a sign that Tehran was neither looking for a full-scale war nor eager to retaliate economically by closing the Strait of Hormuz. This is a strategic waterway through which 20 percent of the world’s oil passes through, and its closure could rattle the oil markets. But following the cease-fire, oil plunged and stocks skyrocketed.

Historically, the stock market tends to dip immediately following the launch of war and the uncertainty it brings. And there’s no way to know whether the Iran–Israel cease-fire would hold. In addition, Israel remains in conflict with Hamas forces in Gaza. And the Ukraine–Russia war surges on. These conflicts bring about uncertainty, and, as we’ve observed, the markets don’t like uncertainty.

So let’s take a closer look at what happens during times of war.

Shock and Awe?

Wars and political conflict may initially trigger sell-offs in the markets as investors become risk-averse due to instability. But the stock market often rebounds within a few weeks or months. In some cases, markets post above-average returns during war times as government spending leans toward defense and infrastructure.

In fact, the stock market climbed about 10 percent following Germany’s invasion of Poland in 1939, which triggered World War II. Stocks dropped 2.9 percent following the Japanese attacks on Pearl Harbor. But the markets regained those losses in less than a month.

Similar trends have been seen more recently. After Hamas terrorists kidnapped and killed more than 1,300 Israeli civilians in Gaza on Oct. 7, 2023, the S&P 500 Index dipped. But it rose as the Israeli military and air force retaliated in the next week.

Moreover, the stock market was shaken following Russia’s invasion of Ukraine in February 2022. The S&P 500 fell by around 7 percent in the weeks following the strike. But within a month, markets rebounded and the index rose to above pre-invasion levels.

“War does not necessarily imply lackluster returns for domestic stocks,” the CFA Institute said in a blog post studying conflicts between 1926 and July 2013. “Quite the contrary, stocks have outperformed their long-term averages during wars.”

Flight, Not Fight

During times of war, some investors flock to safe-haven investments such as bonds, gold, and currencies. Gold has remained resilient in times of both economic and geopolitical uncertainty. Gold prices surged above $2,067 per ounce following Russia’s invasion of Ukraine, a 15 percent uptick from prewar levels, according to Discovery Alert, an investment analysis firm.

“Examining historical data reveals a consistent pattern of gold prices rising during periods of war,” the U.S. Gold Bureau, a private precious-metals dealer, said in a blog post. “Whether it’s the ongoing ‘war on terror’ since 2001 or past conflicts, such as World War II, gold has historically been a safe haven asset.”

But you may be surprised to know that bonds haven’t necessarily held up in war times.

“Bonds generally underperformed their historical average during periods of war,” the CFA said. “This is likely, at least in part, because inflation has been higher during war times. Bond returns have historically been negatively correlated with inflation. Another explanation is that governments borrow more during wars, thus driving bond yields up and bond prices down. With the higher inflation and increased government borrowing associated with war time, investors seeking safety may want to think twice before shifting assets from stocks to bonds.”

A Win for the Defense Sector

Defense contractors and other companies involved in the research, production, and development of military equipment and technology tend to get a boost during war times.

Government spending on defense tends to hold steady even during times of economic or political uncertainty. This could mean a blank check from Uncle Sam for many of the top defense companies. Here are some of the top defense and aerospace companies today:

• Lockheed Martin Corp. (LMT)
• RTX Corp. (RTX)
• Transdigm Group Inc. (TDG)
• Boeing (BA)
• Northrop Grumman (NOC)

The Bottom Line

War bleeds into the stock market—but generally not in the way some may suspect. It’s common to assume the uncertainty war triggers could cripple stock markets. But research shows that many war-related dips tend to be short lived. And, at times, markets deliver above-average returns during times of conflict. In addition, certain sectors like defense and aerospace tend to get a boost during war times.

The Epoch Times copyright © 2025. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.