When cannons roar and nations fight each other, this causes great damage. The impact goes far beyond the war zones, reaching deep into the financial markets. Contrary to conventional wisdom, war does not always lead to chaos or collapse.
History shows that markets can fall into volatility, remain stable, or eventually recover after a period of heavy selling.
The hail of bullets even brought down the curtains on the markets for a long time. Thus, no two conflicts affect markets in the same way. But regardless of how the wars unfold, investors must always be prepared to protect their portfolios. Let’s go back to the time of wars and markets…
World War I
On June 28, 1914, Archduke Franz Ferdinand, heir to the throne of Austria-Hungary, was assassinated in Sarajevo (then part of the Austro-Hungarian Empire). After this, conflicts intensified and Europe became involved in a wider conflict, which resulted in the outbreak of World War I.
The financial panic worsened and stock exchanges across Europe were closed. In the United States, the New York Stock Exchange (NYSE) dropped its shares for about 19 weeks from July 31 to December 11, 1914. This suspension is said to be the longest pause in the global financial system. Seized with fear and uncertainty, investors rushed to safety. The demand for gold increased, which led to a large sale of the commodity. To improve economic stability, the US government invoked the Aldrich-Vreeland Act of 1908, which allowed banks to issue emergency money backed by securities instead of gold.
The war ended the Gold Standard international monetary system, as many warring countries stopped the free conversion of money into gold and began to accumulate gold reserves. The US continues to honor the exchange of gold within the US while restricting the outflow of gold through an export ban. In addition, the disruption has created a severe financial crisis, with banks struggling to provide funds.
World War II
In September 1939, World War II broke out with various economic consequences when Adolf Hitler invaded Nazi Germany. Markets remained open but the crisis moved from monetary to physical, as widespread industrial and infrastructure damage across Europe and East Asia crippled production. During World War II (1939-1945), sales markets moved in phases instead of straight. Historical S&P data showed that the market rose 14% in the month following the German invasion of Poland in 1939, but fell by about 6% in 1940 as fears of a wider war intensified. The market finally bottomed in 1942, when the S&P 500 bottomed.
1973 Yom Kippur War
During the Yom Kippur War, the stock markets did not crash immediately but the real damage came from the oil shock that followed. On October 6, 1973, during the Jewish holy day of Yom Kippur, the armies of Egypt and Syria launched a surprise attack against Israel. In response, on October 17, 1973, Arab members of the Organization of Arab Petroleum Exporting Countries (OAPEC) imposed an oil embargo on Western countries and reduced production, driving the price of oil to quadruple from $3 to $12 per barrel by early 1974. This caused one of the worst bear markets in modern history, when The S&P 500 fell by about 40-45% between 1973 and 1974, a period of about two years.
The war may come and go
In nearly a century of turmoil, the stock market has endured two World Wars, The Great Depression, the Arab oil embargo, the 2000s dot-com crash, the US 9/11 attacks, the 2008 financial crisis, inflation spirals, hyperinflation, the COVID-19 pandemic, political upheavals, scams and scandals, not the banks. War may come and war may end, but the stock market goes on forever. But there is a catch. Markets can fall, continue to fall and remain bearish for short periods of time. However, this uncertainty is not a problem but a risk for long-term wealth creation. Investing is easy but staying invested while bleeding red is the real magic.
‘The lost decades’
Be careful! A strong example: Japan’s Nikkei 225 index reached a peak of about 39,000 on December 29, 1989, and took about 34 years to return to that level in February 2024 and cross 40,000 in March 2024. growth, known as the Lost Decade.
The stock market is a labyrinth that no intelligent mind can decipher with absolute accuracy. However one can navigate this sea with planning and patience. Don’t give in to the fear of selling; if there is no urgent need for money, do not go out in the red; avoid making sudden changes in your portfolio; save enough money for emergencies; continue your SIPs and use the downturn as an opportunity to average your investments. Above all, be patient, be disciplined, and be different: never put all your eggs in one basket.
(The author is a NISM & CRISIL certified Wealth Manager and certified in NISM’s Research Analyst module)
It has been published – March 30, 2026 06:04 am IST
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