This article examines the impact of war on the stock market and explains which stocks are worth investing in during wartime. In 2025 alone, there were more than 50 armed conflicts across the globe, including full-scale military operations in Eastern Europe and the Middle East.
Tensions are escalating between the US and Venezuela, while China is laying claim to Taiwan. Pakistan and India, both nuclear-armed states, are also exchanging threats. Although geopolitical conflicts typically hurt stock markets, modern markets tend to recover quickly, and such periods of instability can present profitable opportunities.
The article covers the following subjects:
Major Takeaways
- During global conflicts, the stock market plummets. Investors prefer to wait out geopolitical turbulence and turn to safe-haven assets.
- At the beginning of a war, stock indices typically fall, but then the market reassesses the fears and risks. For example, Germany and Japan, after World War II, demonstrated that the stock indices of the defeated countries can significantly increase within 5–10 years.
- War benefits those who are not directly involved. Countries engaged in conflict lose resources, which often leads to declines in their stock markets. In contrast, nations that supply weapons or defense services to belligerent countries profit from increased military orders.
- If a country’s domestic economy is expanding and the fighting occurs beyond its borders, shares of military and defense companies may rise.
- In recent years, small-scale military conflicts have had a limited impact on the stock markets of major economies. Wars in the Persian Gulf, Eastern Europe, Palestine, and Syria affected the S&P 500 index far less than the trade disputes between the US and China.
- The most prominent wartime sectors are military equipment and components, robotics (UAVs, ground robots, etc.), artificial intelligence, and cybersecurity.
Historical Stock Market Performance During Wars
Modern stock markets and warfare have changed dramatically from the last century. In the past, mobilizing people for war reduced the labor force, shrinking most production except for the military and causing markets to fall. Today, wars rely more on technology and robotics, with people supporting the economy at home.
Another key factor is information freedom. Without the internet, past market communication was slow and inefficient. Today, the web, automation, and global connections make information widely accessible, enabling markets to react faster and more flexibly. As a result, they are typically more stable and recover more quickly.
World War I and World War II: Market Resilience in Global Conflict
What actually happens to stocks during wartime? In the past century, global stock markets were less developed, and even small wars could wipe out domestic exchanges. For example, after the 1917 Russian Revolution and the 1949 Chinese Civil War, stock markets in those countries effectively disappeared. As a result, exchanges closed, and investors lost their assets.
World War I and World War II were global conflicts, involving countries from different continents. However, market reactions varied. During World War I, markets responded as follows:
- Germany’s stock market plunged more than 70%.
- The US stock market dropped by more than 18%, while the UK market declined by 17%.
- Japan’s stock market rose by more than 50%.
During and after World War II, German and Japanese stock markets collapsed, losing more than 90% of their value. Germany was forced to cut its stock exchange off from the global financial system. In contrast, the markets of the victorious countries surged. At the outbreak of the war, the US saw a massive inflow of investment, driven by confidence in an Allied victory, and this trend continued throughout the conflict. By 1945, the Dow Jones index had climbed by 25% from its 1939 level.
In the UK, the investment boom began toward the end of the war, with markets rising by more than 30%. France, meanwhile, was the slowest to recover.
Post-War Conflicts
Analysts Massimo Guidolin and Eliana La Ferrara of the Swiss Finance Institute analyzed how stock markets behaved in periods of military conflict from 1974 to 2004, examining data from 101 armed incidents.
The results of the study can be called a military paradox. They revealed that in most cases, the US, UK, and French stock markets grew in response to the outbreak of international conflict.
- The start of a war is preceded by a phase of uncertainty, during which markets experience maximum volatility and often decline.
- When hostilities begin, uncertainty subsides, and stock markets in countries outside the conflict often move higher.
- Ahead of the war, investors incorporate geopolitical risks into their strategy. In the event of a negative scenario, financial markets continue to slide. If fears prove unfounded, markets recover.
War does not always lead to recession and a global market downturn. If the armed conflict is regional in nature, investors may interpret it as an indication of increased government spending and investment, which in turn may lead to economic growth.
Recent Conflicts
1. The conflict in Eastern Europe.
Ukraine has virtually no fully-fledged stock market, while Russia’s equity market plunged by more than 40% at the start of the war. However, four years of conflict have shown that neither side has gained a decisive advantage. Russia has partially offset US and European sanctions through closer economic ties with China and India. Although lower oil prices have weighed heavily on shares of major energy companies such as Gazprom, Rosneft, and Lukoil, the impact has not been fatal. As a result, the Moscow Exchange Index has begun to recover.
The US and European markets followed a different path. The S&P 500 was unchanged at the war’s start and had risen 7% by March 2022. Analysts say the late-2022 correction was driven by US economic issues, not the conflict.
The DAX declined slightly in the first six months, partly due to dependence on energy supplies from Russia. However, it began to grow after alternatives were found. The shares of certain European defense companies that received government orders grew by more than 1000% over several years, including Rheinmetall (RHMG) and Saab AB (SAAB B).
2. The conflict in the Middle East.
Israel’s main stock index, the TA-35, showed little reaction to the launch of Israel’s ground operation in Palestine on September 15, 2025, with the bullish trend remaining intact. A similar pattern was observed in early October 2023 following the Hamas invasion of Israel: the index briefly dropped by about 7% before quickly recovering. This resilience may reflect investor confidence in a swift Israeli victory, supported by strong backing from the US. Notably, the S&P 500 was entirely unaffected by the Middle East conflict in 2023.
3. India and Pakistan.
India and Pakistan both possess nuclear weapons and have persistently tense relations. During the latest military escalation in April–May 2025, stock markets reacted only modestly. Following India’s air strikes on Pakistan on May 7, the Nifty index fell by 0.59%, while the Pakistan Stock Exchange dropped by 5%.
This example shows that volatility persists during military conflicts. However, over several decades, the global stock market has adapted to instability and now recovers quickly after relatively small corrections.
Do Stocks Rise or Fall During War?
In the short term, stock markets usually slump during a war. What follows depends on the scale of the conflict and whether other countries become involved. Historically, such declines are often short-lived, especially when the fighting remains geographically contained.
Possible scenarios:
- The shares of specific industries in warring countries may appreciate during the conflict amid increased investment, including from countries not directly involved in the dispute.
- In general, stock markets in belligerent countries are plummeting, though exceptions occur.
- The US stock market may decline, but the correction would be temporary and followed by a relatively rapid recovery. US indices tend to react more sharply to global crises and trade wars.
Regional conflicts are usually no cause for panic and may even create investment opportunities unless they spiral into World War III.
Which Stocks Perform Best During War and Geopolitical Crises
As a rule, companies in the following sectors receive large government orders during wartime.
- Aerospace and defence stocks, including developers and manufacturers of tanks and armoured vehicles, aircraft, UAVs, ammunition, missiles, etc.
- Commodities such as aluminum, iron, and copper. The gold mining sector may also gain as demand for gold as a safe-haven asset picks up. If commodity prices rise, so will the shares of commodity companies.
- When the war ends, the shares of infrastructure companies that construct bridges, roads, and buildings may appreciate significantly.
- IT, cybernetics, and robotics stocks.
- Energy stocks. Increased production of military equipment is driving demand for energy resources.
Investment Strategies for Wartime
History shows that every military clash is unique and can affect stock markets in different ways. Therefore, there is no clear answer regarding investment strategies, although certain patterns can be observed.
At the start of combat operations, almost all markets become highly volatile. Since war is considered a force majeure event, investors worldwide tend to switch to fiat money or safe-haven assets.
Possible strategy: Sell stocks, especially those of warring countries, and consider investing in gold.
This is followed by an analysis phase, when the situation becomes clearer: whether either side has gained the initiative, how long the war may last, and what the broader outlook looks like. At this stage, individual stock markets may begin to recover.
Possible strategy: Invest in the stock indices of countries that are not directly involved in the war but are affected indirectly. Another option is to buy shares of defense companies whose equipment is supplied to the warring parties.
In the post-war phase, the world enters a period of peace, and economies gradually rebound.
Possible strategy: Invest in the shares of warring countries’ companies that have been least affected by military action.
Conclusion
There is no clear correlation between wars and stock market performance. Building an investment strategy based solely on military conflicts is a mistake. It is far more important to consider a country’s role in the conflict, the condition of its economy before the war, and factors such as commodity prices that are critical to the defense industry.
Global military clashes negatively affect the stock market. Historical data indicate that during World War I and World War II, stock markets dropped, even in victorious countries. Although German stocks rose in 1941–1942 amid military successes, this was rather an exception.
The case of the US illustrates that shares of defense companies can soar even during a period of war, provided the conflict takes place outside the country, domestic stability is preserved, and macroeconomic indicators are improving. As for blue-chip stocks, they are generally not the most attractive investment during a war.
War is not inherently good for the stock market. More often, it creates additional risks and uncertainty. At the same time, its impact is not uniform, as markets respond differently to each military conflict. Nevertheless, shares of certain companies may experience significant growth.
Stock Performance During War FAQs
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