Markets often rise during wars - the data is more surprising than people expect

Whenever a new geopolitical conflict starts, the first assumption many investors make is that stocks will crash. But if you look at history, markets often react differently.

Since World War II, the S and P 500 has usually fallen briefly after the start of a major conflict, then recovered fairly quickly once uncertainty decreases. In several cases, markets were actually higher 6 to 12 months after the conflict began.

For example:

* After the Gulf War began in 1991, the S and P 500 gained about 16 percent that year.
* After the Iraq War started in 2003, the index rose more than 25 percent over the following 12 months.
* Even after the invasion of Ukraine in 2022, the US market recovered within months.

One reason is that markets tend to price in uncertainty before the event actually happens. Once the conflict begins and the scope becomes clearer, investors can reassess risk.

Another factor is government spending. Wars often increase defense spending, infrastructure production, and energy investment, which can stimulate parts of the economy.

Right now the market reaction to the Iran conflict has been relatively contained. Oil moved above about $83 per barrel, but major US indexes have not seen dramatic selloffs so far.

Historically the bigger economic impact usually comes from oil shocks or inflation, not the war headlines themselves.

It raises an interesting question for investors.

Do markets typically overreact to geopolitical news at first, or do you think conflicts like this create risks that the market is still underestimating?

Not financial advice.