Markets fall when conflict breaks out. Here is what the data says happens post the war
The Sensex has just posted its worst week in six years. Oil is above $100. The Strait of Hormuz is effectively shut. And in investing forums across India, retail investors are asking the same question: should I get out?
Before that, let’s look at some history.
According to LPL Research’s analysis of 20 major post-World War II military interventions, the S&P 500 fell an average of 6% from the initial shock to its trough. In 19 of those 20 events, markets returned to pre-war levels in an average of just 28 days. Hartford Funds, studying every armed conflict since World War II, found stocks were higher one year after hostilities began in 73% of cases. The average one-week drop following a geopolitical shock is just 1.09%, according to Stock Trader’s Almanac data. Twelve months later, the average gain has been 2.92%.
Here is how the major conflicts look individually:
| Conflict | Initial Drop | Days to Recovery | 1-Year Return After |
|---|---|---|---|
| Pearl Harbor (1941) | -19.8% | ~143 days | +14% |
| Korean War (1950) | -12.9% | ~21 days | +11% |
| Cuban Missile Crisis (1962) | -6.6% | ~14 days | +12% |
| Yom Kippur War / Oil Embargo (1973) | -16.1% | ~6 years* | -41% |
| Gulf War / Kuwait (1990) | -15.9% | ~71 days | +25% |
| 9/11 Attacks (2001) | -11.6% | ~30 days | +17% |
| Iraq War (2003) | Minimal | Immediate | +27% |
| Hamas-Israel (2023) | -2% | ~14 days | +10% |
The 1973 oil embargo triggered a prolonged recession. See caveat below.
What happened most of the time?
After Pearl Harbor — the most devastating surprise attack in American history — investors who held were up 14% within a year. After 9/11, markets had recovered their losses within a month. The Korean War produced an 11% gain in its first year despite lasting three years. The Vietnam War, which ran from the early 1960s all the way to 1975, saw the Dow Jones average a 5% annual gain across that entire period.
Even prolonged conflicts, it turns out, do not derail markets. Researchers at the CFA Institute studying wartime performance across WWII, Korea and Vietnam found that large-cap stocks actually outperformed their long-term averages during war periods. The reason, analysts note, is that markets do not fear war; they fear uncertainty. Once a conflict begins, it becomes a known risk that can be modelled and priced. The uncertainty before the first shot is often worse for markets than the war itself.
The big caveat
There is one exception in the table above, and it is the one most relevant to the current situation.
The 1973 Yom Kippur War triggered an Arab oil embargo that sent the S&P 500 down 41% over the following year and took six years to fully recover. That was a time when the war produced a sustained energy shock in an economy heavily dependent on oil imports, combined with stagflation, Federal Reserve policy errors, and fiscal mismanagement. The combination was devastating and took years to unwind.
The current conflict carries some of that structure. India imports nearly 89% of its crude, and roughly 52% of those imports transit the Strait of Hormuz. A sustained closure would put real pressure on inflation, the rupee, and domestic consumption. If this war drags on for months with the strait remaining shut, the Sensex would face genuine headwinds that go beyond the initial panic selling already visible. Globally, an oil-price surge could keep stocks under pressure over the medium term.
What should investors do?
Nevertheless, in 73% of conflicts since World War II, stocks were higher a year later. Even in the worst-case scenario — a prolonged oil shock — markets eventually recovered and moved to new highs. The Sensex has compounded at roughly 15% annually since 1979 through wars, crises, pandemics and everything else.
But given the conflict is barely ten days old and nobody can credibly say how long the Strait stays shut or whether the war spreads, experts recommend a simple but disciplined approach: do not go all in now. Deploy capital in installments — split whatever you plan to invest across a few tranches over the next few months. This keeps meaningful market exposure while preserving dry powder for further drawdowns.
