Why Wars Rarely Kill Bull Markets: The Contrarian Case For Stocks
Concept of economic crisis due to war. The fall of the world economy and the global financial crisis
War shakes nations—but rarely breaks markets. Yes, war is tragic. It unsettles borders, devastates lives, and reorders global priorities. But the stock market doesn't operate on morality. It runs on capital, incentives, and probabilities. Despite investors' natural aversion to conflict, history reveals that some of the most powerful rallies started during periods of global turmoil rather than peace.
Markets fear uncertainty more than they fear war. And once the fog clears, once direction becomes visible, capital surges back in. From World War II to the Gulf War, and more recently Ukraine, stocks have not only survived wars, but they've also thrived through them.
This isn't an argument for war. It's a reminder that volatility is a feature, not a flaw, and often a precursor to opportunity. Smart investors study patterns of conflict and where to find upside when others are frozen by fear.
The Historical Pattern: Market Performance During War
When conflict breaks out, people tend to panic. Fear takes control. Investors get ready for things to go wrong. But history paints a different picture, one that is much less emotional and much more logical.
Consider the events of Pearl Harbor. Yes, the incident shocked the country, and the markets collapsed. However, this did not persist for an extended period. Despite the global war, the U.S. stock market reached its lowest point by the middle of 1942. The S&P 500 almost doubled by the conclusion of WWII, making it one of the biggest wartime rallies ever. The war had accelerated U.S. industry, and the markets followed suit.
The Gulf War followed the same path. The market fell as troops queued up in 1990. But when the bombs started to fall and things were clearer, investors rushed back. The S&P had gone up more than 15% in just six months.
It happened again in 2003. There were concerns regarding Iraq, oil, and the market. But what happened within a year of the invasion? The market experienced a surge of 30%. And when Russia invaded Ukraine in 2022, markets fell for a while. Stocks in defense and energy rose quickly. What you should remember is headlines don't make markets move; expectations do. When investors price in fear, opportunities typically follow shortly after.
Iran's supreme leader Ayatollah Ali Khamenei speaks after casting his ballot during the runoff ... More presidential election in Tehran on July 5, 2024. Polls opened on July 5 for Iran's runoff presidential election, the interior ministry said, pitting reformist candidate Masoud Pezeshkian against ultraconservative Saeed Jalili in the race to succeed Ebrahim Raisi, who died in a May helicopter crash. (Photo by ATTA KENARE / AFP) (Photo by ATTA KENARE/AFP via Getty Images)
Why War Stimulates Markets
War not only shifts borders, but it also shifts capital. While the human cost is immense, the market reads war as a massive reallocation of resources. And in that chaos, certain sectors don't just survive; they thrive.
First, there's government spending. War represents a significant increase in fiscal stimulus. Defense budgets balloon, procurement surges, and billions pour into listed contractors. Companies like Lockheed, Raytheon, and Northrop Grumman don't just benefit; they become central. That's not speculation; it's government policy.
Then comes the industrial ramp-up. Factories run hotter, supply chains reprioritize, and output spikes, especially in energy, aerospace, and raw materials. War compels nations to increase production, which also impacts company earnings.
Resource nationalism follows. Countries begin hoarding not just oil, but semiconductors, rare earths, and food. That drives up prices and widens margins for suppliers in those chains. Markets like scarcity. War creates it.
Innovation doesn't pause during conflict; instead, it accelerates. From WWII radar to Iraq drone tech to Ukraine's real-time battlefield data, war supercharges defense innovation, cybersecurity, AI, and logistics. Civilian tech almost always inherits advances. Even labor undergoes changes. Wartime economies often see productivity rise and wage dynamics reset, especially as new workforces emerge and inflationary pressures are reprioritized.
As I often say: War reallocates capital with brutal efficiency. The winners? Businesses that produce, transport, or safeguard the instruments of sovereignty emerge victorious. Investors who understand this don't wait for peace; they position early
War Smart Money: What PE And Hedge Funds Know
While retail investors react to headlines, the smart money moves long before the story is fully told. Private equity firms, hedge funds, and institutional allocators don't wait for consensus; they anticipate the pivot from panic to profit.
Private equity leans hard into sectors that become vital during geopolitical shocks: defense, energy, infrastructure. Not only are these industries essential, but many of the players are asset-heavy, cash-generative, and often misunderstood. That's gold for a PE model.
Activist investors know the game too. They don't just look for earnings growth — they hunt for breakups, hidden value, and balance sheet leverage in old-world names. Think railroads, shipping, industrials with legacy real estate, or utilities sitting on valuable grid infrastructure.
Hedge funds quietly build positions in oil & gas ($XOM, $SLB), defense contractors ($LMT, $NOC, $GD), and cybersecurity plays ($PANW, $CRWD)—all before the earnings catch up. Even basic industries like cement and steel ($MLM, $VMC) get bid, as war spending eventually flows into physical rebuilding.
Institutional investors don't buy the war — they buy the pattern. And they've modeled this one before. As I often assert, smart money remains unfazed by headlines. It positions itself before the narrative shifts from chaos to control.
Saddam Hussein's mug on a 250 dinar bill.
Common Misconceptions About War and the Market
Isn't this one of the most facile assumptions in investing? War invariably leads to a bear market. It sounds intuitive—conflict must crush confidence—but history simply doesn't support it. Markets don't fear conflict as much as they fear uncertainty. Once the uncertainty begins to fade, capital returns more quickly than most anticipate.
Most modern wars involving the U.S. or its allies happen far from domestic markets. Geographic distance plays a crucial role. It limits disruption to supply chains, consumer behavior, and capital formation at home.
Even the darkest periods, World War I and Vietnam, were not market disasters solely because of the wars. They coincided with runaway inflation, deep political divisions, and structural economic malaise. It wasn't war that did the damage; it was everything else around it.
Here's the truth: Markets don't price in morality. They price in margins. Investors who overlook this often fall behind.
As geopolitical tensions simmer, from the Middle East to China-Taiwan to the enduring Russia-Ukraine war and now Iran, smart investors are watching more than the headlines. They're tracking where the money is quietly going. That means defense budgets, cybersecurity mandates, industrial reshoring incentives like the CHIPS Act, and energy independence policies now have market-moving implications.
The tactical play isn't just to bet on chaos; it's to identify the companies best positioned to serve sovereign needs.
Look to invest in companies with recurring government contracts, especially in defense, logistics, or infrastructure. Hard assets matter too — ports, manufacturing hubs, critical minerals. Bonus points if the company throws off steady cash flow and is still misunderstood by the broader market. Insider buying? Activist involvement? That's smoke before the fire.
War Alpha Isn't About Comfort
War is uncomfortable. That's precisely why most investors hesitate, giving the advantage to those who don't. Markets aren't moral arbiters; they're mechanisms of capital efficiency. When fear dominates headlines, capital quietly moves toward clarity.
In my 30+ years, one thing has held true: when the world watches CNN, smart money watches earnings. Defense contracts get signed. Oil flows shift. The government subsidizes semiconductors. The re-rating begins while most are still glued to the noise.
War alpha doesn't wait for peace. Those who comprehend the pattern, not just the panic, capture it in real time.
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