Battles in Iran: Impact of War on Markets

In June 2025, the United States launched airstrikes against Iranian nuclear facilities. Markets dropped sharply. Cable news went wall-to-wall. Social media filled with predictions of economic collapse. Retirement savers watched their portfolios fall and felt the primal urge to sell everything and move to cash.

This reaction is completely natural. It is also, historically speaking, almost always wrong.

The U.S. has been involved in wars, military strikes, and geopolitical crises continuously since 1945. Every single one triggered fear. Every single one saw markets recover. The investors who panicked and sold locked in losses. The investors who stayed the course came out ahead — often dramatically.

Post-WWII Conflicts: What Actually Happened to Markets

Korean War (1950–1953)

When North Korea invaded South Korea in June 1950, the S&P 500 dropped about 12% in three weeks. The conflict eventually drew in China, with 36,000 American combat deaths. It was a brutal, uncertain war with a real risk of nuclear escalation.

The S&P 500 over the full duration of the Korean War? Up roughly 60%. An investor who panicked on day one and sold would have missed one of the strongest bull runs of the decade. The market bottomed quickly, then climbed as the economy adapted to wartime production.

Vietnam War (1964–1975)

Vietnam was the longest and most divisive conflict of the 20th century for America. Over 58,000 Americans died. The war dragged on for over a decade, divided the country, and ultimately ended in withdrawal.

Yet the S&P 500 rose approximately 43% from the Gulf of Tonkin Resolution in August 1964 through the fall of Saigon in April 1975 — with significant volatility along the way. The real damage to portfolios during this era came not from the war itself but from the inflation and oil shocks of the 1970s that followed.

Six-Day War and Yom Kippur War (1967, 1973)

The Six-Day War in 1967 barely registered on U.S. markets — the S&P dipped less than 2% and recovered within days. The Yom Kippur War in 1973 was far more consequential, not because of the fighting itself, but because it triggered the OPEC oil embargo. Oil prices quadrupled, and the S&P 500 fell about 17% over the following year. But even that drop was fully recovered by 1976.

The lesson: it wasn't the war that hurt — it was the economic disruption that followed. Wars that disrupt energy supply chains or trade routes do more market damage than wars fought with conventional arms in contained theaters.

Iran Hostage Crisis and Operation Eagle Claw (1979–1981)

When Iranian revolutionaries seized the U.S. embassy in Tehran in November 1979, markets were already struggling with double-digit inflation and soaring interest rates. The failed rescue attempt in April 1980 (Operation Eagle Claw) added to the sense of American decline.

The S&P 500 from November 1979 through the hostages' release in January 1981? Up about 26%. Markets were far more worried about Paul Volcker's interest rate hikes than about events in Tehran.

Gulf War (1990–1991)

Iraq's invasion of Kuwait in August 1990 sent markets into a tailspin. The S&P 500 dropped about 17% between mid-July and mid-October 1990 as oil prices doubled and the prospect of a major ground war in the Middle East loomed.

Then came one of the most dramatic reversals in market history. The S&P 500 rallied roughly 33% from its October 1990 low through the end of the ground campaign in February 1991. The turnaround began before the fighting started — once the uncertainty about whether the U.S. would act was resolved, markets surged. The actual military campaign lasted just 42 days.

September 11, 2001

The 9/11 attacks were unique — the first major attack on American soil since Pearl Harbor, killing nearly 3,000 people. Markets were already closed when the towers fell. When the NYSE reopened on September 17, the S&P 500 suffered its worst week since the Great Depression, falling 11.6%. The Dow dropped 1,370 points in five days.

But here's what most people forget: the S&P 500 had fully recovered those losses by October 11 — less than a month later. By the end of 2001, the market was essentially back to its September 10 close. The investors who sold during that terrifying week in September locked in the worst possible prices. Those who held — or even bought — were whole within weeks.

The broader bear market of 2000–2002 was caused by the dot-com bubble bursting, not by 9/11. The attacks accelerated an existing decline but didn't change the long-term trajectory.

Afghanistan and Iraq Wars (2001–2021)

The Afghanistan War was America's longest — 20 years. The Iraq War, launched in March 2003, saw initial market volatility: the S&P 500 was essentially flat in the weeks surrounding the invasion. But from the March 2003 low through the 2007 peak, the market roughly doubled.

Two decades of continuous military operations in the Middle East, costing over $8 trillion and thousands of American lives, coincided with some of the strongest stock market performance in history. The S&P 500 went from around 800 in March 2003 to over 4,800 by the Afghanistan withdrawal in August 2021 — a 500% gain.

Strikes on Syria (2017, 2018)

President Trump ordered cruise missile strikes on Syrian government targets in April 2017 and April 2018. Market reaction both times: a brief dip measured in hours, followed by complete recovery within days. The 2017 strike saw the S&P 500 close higher the same week.

Soleimani Strike and Iran Tensions (January 2020)

The U.S. killing of Iranian General Qasem Soleimani on January 3, 2020 briefly sent oil prices spiking and futures markets tumbling. Commentators predicted a full-scale war with Iran. The S&P 500 dipped about 1% — and recovered it within two trading sessions. By mid-January, markets had hit new all-time highs.

The Pattern: What the Data Actually Shows

The median initial decline across all post-WWII military crises is roughly 5–12%. The median recovery time is 1–3 months. In almost every case, one-year returns were positive — often strongly so.

The one notable exception is when war triggers a lasting economic disruption, as the Yom Kippur War did through the oil embargo. The conflict itself was over in three weeks; the energy crisis lasted years.

Why Markets Recover

Markets price in fear instantly. When a crisis hits, the initial sell-off reflects the worst-case scenario — nuclear escalation, oil supply collapse, global recession. This happens in hours or days.

But worst-case scenarios almost never materialize. As reality becomes clearer and the actual economic impact becomes measurable, the fear premium evaporates and prices revert. This pattern repeats because:

1. The U.S. economy is enormous and diversified. Military conflicts, even major ones, directly affect a tiny fraction of GDP. Defense spending increases often stimulate certain sectors.
2. Wars end. Unlike structural economic problems (debt crises, banking collapses), military conflicts have finite timelines. Markets are forward-looking and begin pricing in resolution before the fighting stops.
3. Corporate earnings adapt. Companies adjust supply chains, find new markets, and raise prices. The American corporate sector has navigated two world wars, Korea, Vietnam, the Cold War, and two decades in the Middle East — and delivered average annual returns of roughly 10% through all of it.

The Costly Mistake: Panic Selling

Here is the uncomfortable math of selling during a crisis:

Suppose you have $500,000 in a diversified portfolio. Conflict breaks out. Markets drop 10%. Your portfolio is now worth $450,000. You sell, moving to cash. You feel safe.

Markets recover over the next two months — as they almost always do. But you're watching from the sidelines, waiting for "certainty" before getting back in. By the time you feel comfortable reinvesting, the S&P 500 has recovered 15% from its low. You buy back in at roughly where you started.

Except you don't have $500,000 anymore. You have $450,000. You sold the dip and bought the recovery. You crystallized a 10% loss that was temporary on paper into a permanent real loss.

Now compound that mistake over 20 years. That $50,000 loss at 8% annual growth represents $233,000 in lost retirement wealth. A quarter of a million dollars — gone because of a decision made in one frightened afternoon.

This is not hypothetical. Studies by Dalbar, Morningstar, and Vanguard consistently show that the average investor underperforms the market by 3–4% annually, largely due to panic selling during downturns and buying back in after recoveries. Over a 30-year retirement horizon, that behavioral gap can cut your ending wealth in half.

Real Example: Selling After 9/11

An investor with $500,000 in an S&P 500 index fund who sold on September 21, 2001 (the market low) and waited until March 2003 to reinvest (when things "felt safe" after the Iraq invasion) would have missed a 21% recovery from the 9/11 low to the pre-Iraq-War level, then also sat through the additional decline of the dot-com bust. By contrast, an investor who simply held through the entire period from September 2001 through 2010 would have seen their portfolio grow to over $640,000 — despite two wars, a financial crisis, and the worst terrorist attack in American history.

What Long-Term Investors Should Actually Do

During a Crisis

1. Do nothing. This is the hardest and most valuable advice in investing. The urge to act is powerful. Resist it. Your portfolio was built for the long term, and "the long term" includes wars, recessions, and crises.

2. Turn off the news. 24-hour coverage is designed to maximize your fear, not inform your investment decisions. The journalists covering a military strike have no idea what the S&P 500 will do next month. Neither does anyone else.

3. If you must act, rebalance — don't sell. If a market drop has pushed your stock allocation below your target, that's a signal to buy more stocks, not sell them. Rebalancing into fear is one of the few reliable ways to boost long-term returns.

4. Review your plan, not your portfolio balance. Your withdrawal rate, your asset allocation, your time horizon — those are what matter. If those haven't changed, your investment strategy shouldn't either.

Before a Crisis (i.e., Right Now)

The best time to prepare for a market shock is before it happens:

• Hold 1–2 years of expenses in cash or short-term bonds. This "spending buffer" means you never have to sell stocks during a downturn to fund living expenses. It turns a 2-year bear market from a catastrophe into an inconvenience.
• Diversify globally. U.S. military conflicts often have muted or even positive effects on markets in other regions. International diversification smooths the ride.
• Know your risk tolerance honestly. If a 20% drop would cause you to sell, you have too much in stocks. Better to hold a slightly less aggressive portfolio you can stick with than an "optimal" one you'll abandon at the worst moment.

The Broader Lesson

Since 1945, the United States has been involved in the Korean War, the Vietnam War, the Cold War, the Gulf War, Somalia, Bosnia, Kosovo, Afghanistan, Iraq, Libya, Syria, and numerous covert operations and targeted strikes. Through all of it, the S&P 500 has gone from roughly 16 to over 5,000 — a gain of over 31,000%.

Wars are terrifying. They are destructive. They involve real human suffering that no stock chart can capture. But for long-term investors, the historical record is unambiguous: military conflicts cause short-term volatility, not long-term damage. The damage comes from your reaction to the conflict, not from the conflict itself.

The next crisis will feel different. It always does. And the right response will be the same as it has been for every crisis since 1945: stay invested, stay diversified, and stay disciplined.

Review your asset allocation and stress-test your portfolio against different market scenarios with our Investment Strategy planner.

Sources: S&P Dow Jones Indices, Federal Reserve Economic Data (FRED), Congressional Research Service, National Bureau of Economic Research. All market return figures are approximate and based on the S&P 500 total return index.