Markets During War: Why 80 Years of Data Say Don’t Sell the Headline
When war breaks out, markets don’t just react to the conflict itself — they often react to the fear, the uncertainty, and the “what-ifs” that come with it. That fear is often far more costly to investors than the actual events that follow.[1]
That’s not a gut feeling. It’s what 80 years of data tells us, across six major American conflicts.[2] And right now, that data has something important to say to you: Don’t Sell the Headline.
When portfolios dip, even disciplined investors start to wonder “Should I be doing something different right now?” It’s a fair question, and an honest one. U.S. large-cap stocks are down about 4.3% on the year as of March 31st. Growth stocks have felt it more — large-cap growth is off nearly 10% YTD. The headlines are hard to ignore, energy prices are elevated, and with Operation Epic Fury now in its second month, it’s natural to wonder whether something needs to change.
How U.S. Stocks Performed During 6 Major Conflicts (1941–2026)
Across six major conflicts spanning more than sixty years, U.S. markets have followed a pattern that surprises most investors. The initial reaction is almost always negative — markets fall as fear and uncertainty take hold. But in five of the six conflicts we studied, the 12-month return from the conflict start date was positive, often significantly so.[3]
The Korean War is perhaps the cleanest example. North Korea crossed the 38th parallel on June 25, 1950. The Dow dropped 12% in the following two and a half weeks. Two months later it had recovered entirely. By June 1951 it was up 28%.[4]
The Gulf War shows the same dynamic. When Iraq invaded Kuwait on August 2, 1990, oil prices spiked and the S&P 500 fell 21% over the following ten weeks. It was the steepest wartime decline of the modern era. Yet investors who held through that drawdown earned +8.89% over the 12 months from the initial invasion date. The recovery accelerated sharply once Operation Desert Storm launched in January 1991.[5] In both cases, the market was already under pressure from factors predating the conflict.
The Iraq War in 2003 is the most instructive recent example. Markets had actually been falling for months before the invasion, dropping 14.7% during the buildup from December 2002 to March 2003 as uncertainty mounted.[4] The day after the invasion began, the Dow rose 2.3%. In the 12 months from March 19, 2003 to March 2004, the S&P 500 gained 26.97%.[6]
History doesn’t always cooperate, and we think it’s important to say that plainly. The year following September 11th is the one case in our dataset where the 12-month return was negative. The S&P 500 fell 7.4% from September 2001 to September 2002.[4] Vietnam, while not producing a negative 12-month return, also followed a different path: there was no measurable initial drop when ground troops arrived in March 1965, and the Dow gained a modest 10% over that first year.[4]
In both cases, context matters more than the headline number. After 9/11, the dot-com bust had already been unwinding since 2000. The war arrived on top of a market already under severe fundamental pressure. Vietnam is similar: the conflict itself caused remarkably little immediate market disruption. The 10% gain in 1965 actually understates how calm markets were in the face of escalating U.S. involvement. When markets struggle during a conflict, something else is almost always doing the real damage.
Why the Iran Conflict Is Different — and Why It Might Not Matter
We want to be clear: we’re not suggesting the Iran conflict is simply a replay of the past. History rhymes; it doesn’t repeat exactly.
A few things about today’s environment deserve particular attention. While the US is better positioned to handle an energy crisis than in the past, energy is more foundational to the digital economy than in any prior conflict. Almost every data center running AI infrastructure depends on natural gas, and natural gas prices are influenced by a strait that Iran controls. The Federal Reserve has less flexibility to cushion an oil shock today than it did in prior cycles. And gold at elevated levels signals that global investors are already hedging against uncertainty in ways we haven’t seen recently.
These factors matter, and we’re watching them carefully. They have the potential to affect the magnitude of outcomes in both directions. But they don’t change the fundamental pattern the data keeps reinforcing.
Q1 2026 Portfolio Performance: Diversification is Paying Off
Before we look at the historical picture, it’s worth pausing on where things actually stand as of March 31st. Yes, U.S. large-cap stocks are down about 4.3% for the year — and if you’re heavily weighted toward large-cap growth, the number is closer to -10%. That is uncomfortable, and we don’t want to minimize it. But there’s an important other side to this story. Value-oriented stocks have held their ground: large-cap value is up 2.1% YTD, and small-cap value has gained nearly 5%. International diversification is paying off. Latin American stocks are up over 14% this year, and bonds have been essentially flat, doing exactly what they’re supposed to do in a volatile environment. Real estate has added 1.5%. The parts of a well-diversified portfolio that are supposed to cushion volatility are doing their job. This is a market going through a rotation, not a collapse.
History makes the broader point clearly. The investors who sold during Pearl Harbor,[7] Korea, the Gulf War, and Iraq — at the moments when the news felt most alarming — locked in losses and missed the recoveries that followed. The ones who stayed the course were generally rewarded for it.
While a -4% year-to-date number on U.S. large caps feels painful, it is not a crisis. The broader picture of your portfolio is more resilient than any single headline suggests. The uncertainty is real. But eighty years of data show that the periods of maximum worry have more often than not been the worst times to make big moves. We believe our investment process and portfolio positioning provide well-diversified portfolios designed to manage risk in these environments. Please contact us if you would like to discuss current market volatility or how your specific portfolio is positioned.
As always, we’re grateful for your continued trust and the relationships we’ve built together. If you ever have questions, concerns, or simply want to talk through how these themes apply to your portfolio, please don’t hesitate to reach out.
Connor Doak & Brian Gigl
Riverwater Partners
Sources
[1] War-by-war market narrative and pattern analysis — The Timeless Investor: A Short History of War & Markets
[2] U.S. stock market performance across every major conflict (1914–2026) — Dave Manuel
[3] Market reactions to military conflicts, post-WWII analysis — RBC Wealth Management
[4] Korean War, Vietnam, 9/11, and Iraq War market data — iSectors: Stock Markets in Times of Uncertainty
[5] Gulf War / Operation Desert Storm S&P 500 returns — Dunham: Emotional Market Timing and Yahoo Finance: This Day in Market History
[6] Iraq War 2003 stock market rebound — SimianX AI
[7] Pearl Harbor market reaction (Dec. 8, 1941) — Begin To Invest
The information provided herein reflects the opinions of Riverwater Partners, LLC as of the date of publication and is subject to change without notice. It is provided for informational and educational purposes only and should not be construed as investment advice or a recommendation to buy or sell any security. Past performance is not indicative of future results. Investing involves risk, including the potential loss of principal. Indices cannot be invested in directly and are unmanaged. Riverwater Partners does not guarantee the accuracy or completeness of this information and is not responsible for any errors or omissions. Clients or prospective clients should consult their financial advisor before making any investment decisions. Riverwater Partners is a Registered Investment Advisor with the U.S. Securities and Exchange Commission (SEC).
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