While the prospect of war often prompts investment commentators to quickly draw dire conclusions about the investment implications, U.S. military actions have historically been poor predictors of the stock market’s performance.
On the first trading day following the U.S. bunker busting bombing of nuclear enrichment sites in Iran, the U.S. stock market increased about one percentage point. Oil prices fell. This, after a weekend of pundit warnings about the likely catastrophic financial fallout of the U.S. action.
Even when the outcomes seem obvious, you can’t predict short-term moves in the stock market. The stock market initially declined following Russia’s invasion of Ukraine (February 2022) and the October 7, 2023 Hammas attacks in Israel. It took less than a week each time for the markets to fully recover those initial losses.
Sometimes the stock market responds surprisingly positively to military actions. Stocks rose more than 8% in the month following the U.S. invasion of Iraq in 2003. In the month following Hitler’s invasion of Poland, the stock market rose 10%, twice the market’s immediate 5% gain following the Allied D-Day invasion of France in 1944.
The market dropped 12% in reaction to the start of the Korean War and 3% in reaction to the Japanese bombing of Pearl Harbor. The week following the attacks of September 11, 2001 was one of the worst in history, with the market dropping about 15%. Yet within two months, the market fully regained this loss.
The market produced significant returns over prolonged conflicts, as well. The U.S. stock market increased during WWI (+43%), WWII (+50%) and the Korean War (+58%). Over the 8 years of the large-scale direct U.S. involvement in the Vietnam War (1965-1973), the S&P 500 increased 43%.
Even a constant geopolitical threat doesn’t outweigh the long-term performance of the stock market. Look at Israel, a country that is seemingly in an almost constant state of conflict with one or more of its neighbors. In the past 25 years, the Tel Aviv stock market has gained an average of 20% annually, far outpacing both e S&P 500 and Dow Jones Industrial Average.
Historians tell us that the closest the world has come to nuclear conflict was the Cuban missile crisis in October 1962. After declining 6% following President Kennedy’s announcement of the naval blockade, the U.S. market rebounded when the USSR agreed to remove its missiles, resulting in a 4% gain for the month.
Perhaps I’m naïve, but I’ve always assumed that if we have a worldwide nuclear war, I will be much more concerned about having food and water rather than worrying about the Dow Jones Industrial Average or if my portfolio is overweight technology stocks.
David Moon is president of Moon Capital Management. A version of this piece originally appeared in the USA TODAY NETWORK.