War and the Long-Term Investor: Why Geopolitical Shocks Matter Less Than You Think

March 5, 2026

A data-driven look at stock market resilience through history’s darkest moments

When armed conflict or terrorism disrupts global stability, many investors react instinctively by selling assets, seeking safety, and waiting for uncertainty to subside. While this response may feel prudent, historical evidence suggests it often proves costly. Decades of market data show that geopolitical shocks, even severe ones, have rarely altered the long-term trajectory of U.S. equity markets.

The Initial Shock Is Rarely the Story

The above chart from First Trust Portfolios, covering ten major geopolitical events from Pearl Harbor in 1941 through the Israel–Hamas conflict in 2023, highlights a consistent pattern: while short-term market reactions vary, recoveries have typically been swift—and in some cases, markets barely reacted at all.

For example, U.S. equities rose 1.89% on the day Russia invaded Ukraine in February 2022 and gained 0.60% at the onset of the Israel–Hamas war in October 2023. Even during more severe historical episodes—including 9/11, Pearl Harbor, and North Korea’s invasion of South Korea—initial declines were followed by recoveries that occurred far sooner than many investors anticipated.

Other events resulted in relatively modest and short-lived drawdowns. The Boston Marathon bombing in 2013 led to a maximum decline of 3.18%, with markets fully recovering within 14 days. The Cuban Missile Crisis produced a 6.68% drawdown, recovered in just 17 days. Even Pearl Harbor, which drew the United States into World War II, saw markets bottom within 142 days and fully recover in less than one year.

Markets Don’t Just Survive Wars — They Often Thrive During Them

Perhaps more surprising is market performance over the full duration of major wars. The data on five extended conflicts shows that U.S. equities frequently generated returns comparable to—or exceeding—long-term historical averages during wartime.

During World War II, the U.S. stock market delivered annualized returns of 20.1%. The Korean War period produced returns of 15.3%. The Gulf War generated a 10.1% annualized return despite elevated volatility. Even the Iraq War, which spanned nearly nine years, delivered a 6.8% annualized return—below the long-term average of 10.2%, but still positive across an extended period of conflict. For context, the U.S. market has returned approximately 10.2% annually from 1926 through October 2025, a benchmark wartime returns have often matched or exceeded.

What This Means for Interest Rate Cuts?

This conflict is placing significant upward pressure on oil prices. Energy represents one of the largest components of the Consumer Price Index (CPI), and a sustained increase in energy costs could meaningfully affect the inflation outlook. If elevated oil prices persist, expectations for near-term interest rate cuts may need to be revised lower.

Our prior view was that inflation had likely bottomed at 2.39% last month, followed by a gradual acceleration into the high‑2% range over the coming months. That timeline may be accelerated if oil prices remain at current levels for an extended period. A swift resolution to the conflict would likely limit any impact on monetary policy. However, a prolonged disruption could keep inflation elevated, reduce the likelihood of rate cuts, and, if sustained, pose broader challenges for the U.S. economy.

What This Means for the Long-Term Investor

Geopolitical events undeniably shape the world, but markets have consistently demonstrated an ability to absorb uncertainty and move forward. Businesses adapt, supply chains adjust, and economic growth continues even amid conflict. Historically, the greatest cost has been borne by investors who exited markets during periods of fear and failed to participate in subsequent recoveries.

The historical record is clear: long-term discipline matters far more than attempting to time markets around geopolitical events. Across more than eight decades of conflict, patient investors have been repeatedly rewarded for remaining invested.