While the human cost of conflict is immeasurable, the financial history of the American stock market tells a counterintuitive story. For over a century, the U.S. market has demonstrated a remarkable ability to “climb a wall of worry.” Despite the initial shock of military engagement, the S&P 500 has historically recovered quickly, often finishing years of conflict with gains that exceed peacetime averages.

Key Insight: Markets hate uncertainty more than they hate war. Once a conflict begins and the “rules of engagement” are understood, investors typically shift focus back to corporate earnings and economic fundamentals.

Historical Context: Performance Under Fire

Data from the last century suggests that while the “pre-war jitters” can depress prices, the actual outbreak of hostilities often triggers a relief rally.

Conflict S&P 500 (3 Months Pre-War) S&P 500 (1 Year Post-Start) Total Annualized Return
World War II -12.3% +16.9% 16.9%
Korean War +0.6% +10.3% 18.7%
Gulf War +9.8% +18.2% 11.7%
Iraq War -2.2% +30.0% 9.8%
Afghanistan War -11.4% +10.4% 7.8%

Source: The Motley Fool (2025), Fidelity Investments (2026).

The “Surprise” Factor

History shows that anticipated conflicts (like the 2003 Iraq invasion) allow the market to price in risk early. Conversely, surprise attacks (like Pearl Harbor or 9/11) trigger sharper, immediate drawdowns. For instance, the Dow Jones dropped 3.5% the day after Pearl Harbor and 5% after the Korean War began, but these losses were generally recouped within months.

Sector Winners and Losers

Wars create a massive shift in government spending priorities, leading to distinct “wartime” winners:

  1. The Defense Barometer

Defense contractors (e.g., Lockheed Martin, Raytheon) often act as a hedge against geopolitical risk. In 2025, major contractors reported record backlogs—Lockheed Martin alone reached $194 billion—providing multiyear revenue visibility that is rare in other industrial sectors.

  • Performance: Defense ETFs saw gains of over 56% in the year leading into early 2026 as global tensions escalated.
  1. Energy and Commodities

Conflict in oil-producing regions (like the Middle East) or transit chokepoints (like the Strait of Hormuz) creates immediate volatility.

  • The 2026 Context: Recent escalations in the Middle East have seen oil-linked assets surge as markets price in potential supply disruptions. Approximately 20-21% of global oil passes through the Strait of Hormuz, making it the world’s most sensitive energy chokepoint.
  1. Safe Havens

Gold remains the ultimate “fear hedge.” By late February 2026, gold reached record highs of $5,296 per ounce as investors sought protection from currency devaluations and geopolitical instability.

Current Outlook: 2026 Trends

As of March 2, 2026, the S&P 500 is navigating “echoes of volatility” from the previous year. While regional conflicts in the Middle East and the ongoing Russia-Ukraine war create “headline risk,” the primary drivers of the U.S. market remain:

  • Federal Reserve Policy: Interest rate adjustments often outweigh war news in determining long-term stock valuations.
  • Corporate Earnings: Markets continue to reward companies with “earnings durability”—those that can pass on increased energy and logistics costs to consumers.

Sources

  1. Fidelity Investments (Feb 2026): War and Markets: Historical Analysis.
  2. The Motley Fool (June 2025): Wartime and Wall Street.
  3. U.S. Bank Asset Management (Feb 2026): Geopolitical Conflict and Its Impact on Global Markets.
  4. Morningstar (March 2026): U.S. Strikes on Iran and Defense Stock Performance.
  5. NBER Working Paper Series: Stock Volatility and the War Puzzle.
  6. Bloomberg/EL PAÍS (March 2026): Energy Market Tensions and the Strait of Hormuz.