It’s completely normal to feel anxious or unsettled when global conflicts arise. These events can trigger strong emotional reactions, especially when it comes to your finances. But this is exactly when it’s most important to avoid making decisions based on fear. That’s why having an advisor matters. They bring a level head and long-term perspective, helping you stay on course and avoid emotional decisions that could derail your financial goals.
Let’s take a closer look at how global and Australian markets have reacted during past conflicts. For clarity, we have separated conflicts and observations into two buckets; before 1985 and after 1985.
Wars create uncertainty, disrupt economies, and often lead to increased government spending. This combination can cause short-term market volatility but can also stimulate certain sectors like defence, energy, and commodities.
For resource-rich economies like Australia, conflicts can often boost mining and energy stocks, due to increased demand for metals and energy products. The US market, being the world’s largest, often reflects broader global economic and political shifts.
World War I (1914-1918): The Dow Jones dropped sharply (about 30%) in the six months after war broke out. However, once markets reopened, the Dow surged by 88% in 1915 alone. By the end of the war, the market had gained around 43% overall, averaging about 8.7% per year[1].
World War II (1939-1945): When WWII began, the US market initially rose sharply—about 15% in the week following the outbreak. Despite volatility during the war, the market ended the period with positive returns, driven by economic mobilisation and post-war growth[2].
Korean War (1950-1953): The market showed resilience with positive returns of around 11% one year after the war started and strong gains over three to five years.
Vietnam War Era (1960s-1970s): Despite the conflict, the Dow Jones posted a 10% gain in 1965 and an overall 43% gain by the end of the war in 1973, averaging about 5% per year[1].
World War II: The Australian market was volatile, initially falling by about 29% by March 1942 due to Japanese advances and regional insecurity. However, after key Allied victories and US military support, the market rebounded strongly[3].
Other conflicts: While detailed data is less abundant, Australia’s market generally followed global trends, with mining and resource stocks often outperforming due to increased demand.
Gulf War (1990-1991): The S&P 500 dropped about 10% immediately after Iraq invaded Kuwait, but rebounded quickly, rising around 20% over the following year[4].
Post-9/11 (2001): The market fell sharply after the terrorist attacks but recovered within months and gained about 15% over the next year.
Iraq War (2003-2011): A similar pattern emerged with an initial decline followed by a 20% rise in the year after the invasion[4].
Recent conflicts (e.g. Russia /Ukraine 2022): Markets fell about 5-13% in the short term but showed signs of recovery within a year[4][1].
June 2025 Israel / Iran conflict: While volatility initially spiked, markets only fell around 1% and have since recovered back to levels before the latest conflict between Iran and Israel started.
Overall trend: Since 1985, the US market has been remarkably resilient during conflicts, often recovering quickly and delivering positive returns over three to 10 years.
The Australian market has mirrored global trends, with short-term dips during geopolitical shocks but recovery over time.
Sectors like defence, gold, energy, materials, and agriculture have historically outperformed during conflicts, due to increased demand and government spending.[4] For example, during both the Gulf and Iraq wars, the ASX fell initially but rebounded strongly within a year.
Government spending: Wars usually lead to increased government expenditure on defence and infrastructure, boosting economic activity.
Commodity demand: Australia benefits from higher demand for metals, energy, and agricultural products during conflicts.
Investor psychology: Initial fear causes sell-offs but markets tend to price in the long-term economic impact, leading to rebounds. This long-term focus seems to have increased in more recent times, hence the less impactful results since 1985.
Innovation and productivity: Post-war periods often see technological advances and economic rebuilding that fuel growth.
Expect short-term volatility: Markets often react negatively in the immediate aftermath of conflicts or escalations. This is normal and often temporary.
Focus on the long term: History shows that markets tend to recover and perform well three to five years after conflicts begin.
Stick with your investment strategy: Stay the course with your current portfolio and allow your advisor to make any changes in consultation with the Research team.
Avoid emotional decisions: Selling in a panic during geopolitical events can lock in losses and lead to missed opportunities during market recoveries.
Stay informed but balanced: Keep an eye on global events but maintain your financial plan aligned with your goals.
Wars and conflicts are understandably unsettling for investors, however history tells a clear story: markets are resilient. For Australian investors, maintaining a diversified portfolio, keeping a steady investment approach and staying in close communications with your advisor are key strategies to navigate uncertain times with confidence.
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