do stocks drop during war? Historical evidence & investor guide

Do stocks drop during war?

Do stocks drop during war? This article starts with that exact question and gives a clear, evidence‑based summary for investors. In the short term, stocks often fall when conflict escalates or becomes likely — uncertainty and risk‑off flows push markets lower. Over medium and long horizons the picture is mixed: some wars coincide with recoveries and even strong equity returns, depending on surprise, scale, location, commodity impacts, and policy responses. Readers will gain: a concise overview, historical case studies, the academic “war puzzle,” sectoral winners and losers, how other asset classes react (including cryptocurrencies), and practical tactics for different time horizons.

Note on scope: this article remains neutral and empirical. It summarizes historical market behaviour without political commentary. It is not investment advice.

Overview

Investors frequently ask: do stocks drop during war? The short answer is that equity markets typically react with heightened volatility and a risk‑off bias when war is expected or begins suddenly. That market behaviour is driven by uncertainty about economic disruption, commodity supply, trade, inflation, and policy responses.

Typical short‑term effects include:

• Rapid selloffs and spikes in intraday volatility.
• Flight to safe havens (government bonds, gold, strong fiat currencies).
• Sector rotation toward perceived defensive industries (defense/aerospace, energy, precious metals) and away from cyclical or discretionary sectors (travel, leisure, consumer discretionary).

A key distinction matters: anticipated conflicts and gradual escalations tend to be priced in over time, producing smaller marginal market moves when they actually occur; surprise onsets often trigger larger immediate declines. The net effect across an entire war period varies widely by conflict.

Historical patterns and empirical evidence

Research and market practitioners analyzing large samples of conflicts find recurring but non‑uniform patterns. Multiple studies and practitioner reports indicate that:

• Prewar jitters often depress prices as risk premia rise and uncertainty increases.
• Surprise outbreaks usually produce sharp short‑term declines and volatility spikes.
• Once the scope and likely duration of the conflict become clearer, markets frequently rebound as investors re‑assess economic impacts and policy responses.
• Over the full conflict period, some major wars coincided with positive stock returns, particularly when wartime production offsets other negatives or when monetary/fiscal support stabilizes growth.

Key sources that support these findings include practitioner reports (Mauldin Economics; Invesco), long‑run academic analyses (Glassman; the Springer article "The war puzzle"), and market commentary from finance outlets. Aggregated statistics vary by sample and methodology, but the broad conclusion is consistent: do stocks drop during war? Often yes immediately; the medium/long‑term outcome depends on many variables.

Key historical findings

Two recurring findings appear across academic and practitioner work: first, the probability of war rising tends to lower equity valuations (risk premia increase). Second, when a war actually starts and is not fully surprising, stock prices can stabilise or even rise — an effect sometimes labelled the “war puzzle.” Surprise conflicts remain the most damaging for equities in the short term.

Case studies (selected conflicts)

The following short case studies illustrate differing market reactions. Each subsection offers concise historical context and observed market behaviour.

World War II (1939–1945)

Do stocks drop during war in the case of World War II? At the outset, global markets experienced sharp declines as uncertainty increased. Over several years, U.S. equities recovered and produced multi‑year gains, helped by massive wartime production, industrial mobilisation, and strong postwar reconstruction. The net effect on U.S. equity holders across the full period was positive for many long‑term investors, but that outcome reflects a complex interaction of fiscal policy, industrial capacity, and postwar economic expansion.

Korean War (1950–1953)

The Korean War produced an immediate market drop at the news of hostilities, followed by a relatively quick recovery. Increased defense spending and limited geographic scope reduced long‑term economic disruption for the U.S. economy, and equities adjusted accordingly.

Vietnam War (1955–1975)

The Vietnam War era shows a more mixed result. Markets contended with prolonged uncertainty, domestic political turmoil, and inflationary pressures that ultimately weighed on returns. Extended conflicts with ambiguous outcomes can produce prolonged market underperformance — though disentangling war effects from concurrent macro conditions is analytically challenging.

Gulf War (1990–1991)

The Gulf War saw a short‑term selloff as oil price risk and regional instability rose. Once the scope of operations remained limited and objectives became clear, global markets rallied. The rapid resolution and clear political objectives limited longer‑term market damage.

9/11 and subsequent conflicts (Afghanistan, Iraq)

The 9/11 attacks prompted an immediate and severe market reaction, including exchange closures and sharp declines upon reopening. Subsequent military actions and long campaigns had varying market impacts, with notable sectoral winners (defense, security technologies, energy) and the stabilizing effect of monetary and fiscal policy.

Russia–Ukraine conflict (2022– )

The February 2022 invasion produced rapid global volatility, commodity and energy shocks, and concentrated regional pain in affected markets. Many global indices fell at first then recovered differentially; commodities such as oil and certain agricultural prices spiked. Markets with substantial economic exposure to Russia or Ukraine underperformed relative to broader indexes.

The "war puzzle" (academic perspective)

Academic work, including the Springer paper "The war puzzle: contradictory effects of international conflicts on stock markets" (2014), explores an apparent contradiction: the increased probability of war negatively affects stock prices, yet the actual outbreak of war — particularly when expected — sometimes leads to price increases. Several mechanisms are proposed:

• Expected wars are often priced in, so the marginal news of outbreak yields limited negative information.
• Governments typically respond with fiscal stimulus and monetary measures that support economic activity and asset prices.
• War winners in terms of government procurement and specific sectors can offset broader losses.

Exceptions occur when the conflict is truly unexpected, when major economic powers are directly involved, or when commodity supplies are severely disrupted. The academic consensus is nuanced: do stocks drop during war? The answer depends critically on expectation and surprise.

Factors that determine market reaction

Several determinants consistently explain why the same question — do stocks drop during war? — has different answers across conflicts.

• Surprise vs. expectation. Anticipated conflicts create smaller marginal market moves; surprise onsets trigger larger declines and volatility.
• Geographic location and economic linkages. Conflicts near major trade routes or within integrated economies cause larger disruptions.
• Scale and duration. A short, contained conflict produces different outcomes than a prolonged, global war.
• Direct involvement of major economies. If large economies (e.g., U.S., EU, China) are directly engaged, the global economic fallout is greater.
• Commodity exposure. Wars that threaten oil, gas, or food supplies can increase inflation expectations and depress real returns.
• Policy response. Rapid fiscal and monetary measures can blunt negative impacts and support risk assets.
• Market structure and valuations. Highly leveraged markets or overvalued sectors can experience larger drawdowns.
• Investor sentiment and safe‑haven demand. Shifts in risk appetite drive flows into bonds, gold, and stable currencies.

These factors interact. For example, a surprise shock that also hits an energy‑exporting region will typically have larger and more prolonged market effects than a limited, geographically distant skirmish.

Sectoral winners and losers

When investors ask do stocks drop during war, they often mean “which stocks or sectors perform relatively well?” Historical patterns show consistent sectoral divergences.

Sector winners (historically):

• Defense & aerospace: increased government spending can lift earnings and valuations.
• Energy and commodities: supply concerns can raise prices for oil, gas, and key agricultural products.
• Cybersecurity and intelligence‑related tech: rising demand for security services in prolonged tensions.
• Precious metals: gold and similar assets often rally as safe havens.

Sector losers (historically):

• Travel & leisure: airlines, hotels, and tourism suffer from travel disruptions and lower consumer confidence.
• Consumer discretionary: durable goods and luxury spending often fall amid uncertainty.
• Regional banks: banks with concentrated exposure to affected regions can underperform.

These are general patterns; company‑level fundamentals and balance sheets always matter. Defensive sectors are not universally safe — valuation and leverage still determine risk.

Effects on other asset classes

Warfare and geopolitical shocks trigger cross‑asset rotations that are important for portfolio construction.

• Government bonds and the U.S. dollar: Treasuries and major safe currencies typically attract flows during acute uncertainty, reducing yields (raising prices) in many episodes, though there are exceptions when yields rise due to inflation expectations or risk‑premium repricing.
• Gold and precious metals: gold often benefits from safe‑haven demand and a hedge against inflation or currency weakness.
• Commodities: oil, natural gas, and key agricultural commodities can spike if supply routes are threatened.
• Cryptocurrencies: the empirical record is mixed. Cryptocurrencies have sometimes acted like risk assets — falling alongside equities during broad risk‑off episodes — and have not consistently behaved as independent safe havens.

A recent market episode illustrates these cross‑asset linkages: as of January 22, 2026, according to Bloomberg, global cryptocurrency markets experienced a significant tremor when Bitcoin broke below the psychologically important $90,000 threshold. That Bitcoin price drop coincided with simultaneous declines in U.S. equities and both long‑term U.S. and Japanese government bonds, producing a synchronous risk‑off move across asset classes. In that episode, gold and the U.S. dollar strengthened while equities and major cryptocurrencies fell, highlighting how geopolitical or macro shocks can produce broad capital flight from risk assets.

Cryptocurrency behaviour in geopolitical shocks

Do stocks drop during war and do cryptocurrencies behave similarly? The short answer: cryptocurrencies often behave like high‑beta risk assets rather than reliable safe havens. Historical episodes show mixed outcomes:

• Correlation with equities: in many recent stress events, Bitcoin and major altcoins fell in tandem with equities, suggesting rising correlations in times of macro stress.
• Volatility: crypto markets often exaggerate moves due to lower liquidity and higher retail participation.
• Safe‑haven claims: evidence that cryptocurrencies serve consistently as a safe haven during geopolitical crises is weak; they more commonly act as speculative risk assets.

Given that dynamic, investors considering crypto exposure during geopolitical uncertainty should treat digital assets as volatile, high‑beta instruments and consider liquidity and portfolio risk management.

Investment implications and strategies

This section provides neutral, practical considerations (not investment advice) for investors grappling with the question do stocks drop during war and how to respond depending on horizon and risk tolerance.

General principles

• Avoid panic selling. Historical recoveries show that knee‑jerk exits can lock in losses.
• Clarify your investment horizon. Short‑term traders need different tools than long‑term investors.
• Maintain diversification. Spreading exposure across geographies and asset classes reduces single‑event risk.
• Mind liquidity. Liquidity dries up in crises; maintain access to cash or liquid instruments to meet needs or take opportunistic positions.
• Use quality and balance‑sheet strength. Companies with strong cash flows and low leverage historically weather shocks better.

Short term tactics

• Cash and stop‑loss discipline: holding defensive cash buffers allows measured responses and reduces forced sales.
• Volatility products and hedges: options, inverse ETFs, or volatility instruments can hedge short‑term exposure where appropriate and understood.
• Short‑term hedges: hedging core market exposure may be suitable for some institutional or active traders; these tools require expertise and attention to costs.

Long term approach

• Buy the dip selectively: many studies indicate that sharp geopolitical selloffs have historically presented long‑term buying opportunities for disciplined investors.
• Focus on fundamentals: prefer companies with robust cash flows, diversified revenue, and low financial risk.
• Rebalance rather than time markets: systematic rebalancing helps capture value and enforce discipline.
• Consider sector rotation thoughtfully: shifting towards defensive sectors can protect portfolios but may sacrifice upside if markets recover quickly.

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Limitations, caveats, and methodological issues

Any attempt to generalize the answer to do stocks drop during war must confront methodological limits:

• Heterogeneity of conflicts. Wars differ widely in scale, location, and economic impact.
• Survivorship and data limitations. Market closures, index composition changes, and data gaps complicate long‑run comparisons.
• Changing market structure. Financial markets today differ markedly from those in 1939 or 1950 — higher speed, derivatives, and global capital flows change transmission mechanisms.
• Policy environment. Central bank tools and fiscal responses vary by era and materially affect outcomes.
• Expectation effects. The role of expectations means that much of the market move can occur before actual hostilities begin.

Given these caveats, historical patterns are informative but not determinative. Investors should treat past conflicts as case studies rather than firm predictors.

Relation to non‑equity markets and integrated crises

Do stocks drop during war and how do integrated market stresses look? Modern financial crises often involve simultaneous moves across equity, bond, and crypto markets. The January 2026 episode referenced above demonstrates such integration: Bitcoin fell below $90,000, equities recorded sharp weekly losses, and long‑term government bond yields spiked, producing a cross‑asset correction. Monitoring a broad set of indicators (bond yields, currency moves, commodity prices, and on‑chain crypto metrics) provides a more complete picture of market stress than focusing on equities alone.

Quantifiable indicators to monitor during geopolitical episodes include:

• Equity index drawdowns and weekly returns (e.g., S&P 500, MSCI World).
• Treasury yields and yield curve shifts (10‑year and short‑term rates).
• Oil and key commodity price changes (Brent crude, natural gas, key agricultural commodities).
• Gold price and currency indices (U.S. dollar index).
• Crypto‑specific metrics: Bitcoin price levels, exchange net flows, futures funding rates, and major stablecoin inflows.

As of January 22, 2026, according to Bloomberg, the breakdown in correlation across these indicators illustrated how rapid geopolitical or policy‑driven shocks can propagate through modern financial markets.

Practical checklist for investors

When facing a new geopolitical shock, use this checklist to assess risk and decide on action:

1. Confirm facts and timing: distinguish credible reports from rumor; markets price credible surprises.
2. Identify exposure: map portfolio geographic and sector exposure to the affected region.
3. Estimate contagion channels: energy/commodity links, trade disruptions, and financial counterparty risk.
4. Check liquidity needs: ensure cash buffers to meet short‑term obligations.
5. Consider sized hedges: use options or other instruments only if understood and sized appropriately.
6. Monitor policy responses: fiscal stimulus or central bank action can materially change outcomes.
7. Review diversification: consider non‑correlated assets if available and appropriate.
8. Avoid overreacting to headlines: markets often overshoot on the downside; measured responses tend to outperform panicked moves.

See also

• Geopolitical risk and markets
• Safe‑haven assets and flight to safety
• Market volatility (VIX) and risk premia
• Sector rotation and defensive investing
• Wartime economies and fiscal policy

References

• Mauldin Economics — "Here's how stocks historically perform during wars" (2025) — practitioner research and illustrative examples.
• Invesco — "Markets in War Time" (PDF) — historical asset‑class data across major 20th/21st century conflicts.
• Glassman, J. K. — "War and the Stock Market" (AEI, 2001) — overview and historical analogies after 9/11.
• Motley Fool — "Wartime and Wall Street: How War Affects the Stock Market" (2025) — summary and sectoral analysis.
• Springer — "The war puzzle: contradictory effects of international conflicts on stock markets" (2014) — academic analysis of expectation vs outbreak.
• Investopedia — "Impact of War on Stock Markets" — synthesized overview and practical takeaways.
• Practitioner pieces (Nedbank; Bearsavings; LiteFinance; Endowus) — sectoral implications and investor strategies.
• Bloomberg — market coverage referenced for the January 2026 cross‑asset episode (see text for date and context).

Further reading and data: readers can consult the referenced studies and institutional white papers for detailed statistics and tables. When evaluating trading platforms or wallets for execution, consider reliability, liquidity, security, fees, and user support; for crypto management, Bitget Wallet is mentioned here as a platform option for secure wallet management.

Closing and next steps

If your immediate question is simply "do stocks drop during war?" the succinct, evidence‑based reply is: often in the short term, yes — but medium‑ and long‑term outcomes are mixed and hinge on expectation, scope, commodity exposure, and policy response. Investors benefit from clarifying horizons, maintaining liquidity, focusing on diversification and quality, and avoiding panicked reactions.

Want to explore live market data, trade or manage crypto assets with integrated wallet support? Consider reviewing Bitget trading services and Bitget Wallet for secure crypto custody and execution. For deeper study, consult the listed references and institutional papers.

As of January 22, 2026, according to Bloomberg, a recent cross‑asset correction that included Bitcoin falling below $90,000 illustrates how rapidly geopolitical and macro forces can move modern markets — reinforcing the need for preparation and a measured response framework.

Thank you for reading. To learn more about specific defensive strategies, sector analyses, or platform tools for managing risk in volatile periods, explore additional Bitget resources and educational guides.