How Do Markets React to War?
June 18, 2025
“Here’s what you need to know.”
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The stock market’s reaction to war is multifaceted, influenced by factors such as the scope, location, duration, and broader economic implications of the conflict. While each situation is unique, there are common patterns and sector-specific responses that can offer insight. Generally, markets respond negatively to the outbreak of war due to heightened uncertainty and fear, though the long-term effects vary depending on the nature and duration of the conflict.
In the short term, markets often experience a sharp decline.
The initial shock of war typically triggers a selloff, as investors react to rising geopolitical risk and uncertainty. Volatility tends to spike, reflected in jumps in the VIX, commonly referred to as the “fear index.” Historical examples include the aftermath of the 9/11 attacks, when the S&P 500 fell over 11% during the week markets reopened, and the start of Russia’s invasion of Ukraine in February 2022, which caused global markets—particularly in energy-dependent nations—to drop significantly.
Over the medium to long term, outcomes become more nuanced.
If the conflict is short-lived and geographically contained, markets often recover quickly. However, prolonged wars that disrupt global supply chains, fuel inflation, or cause significant economic contractions can lead to extended downturns. Investor sentiment tends to improve once the situation stabilizes or becomes more predictable, but a protracted conflict with broad consequences can weigh heavily on market performance.
Different sectors respond differently to wartime conditions.
Defense companies, such as Raytheon and Lockheed Martin, typically see a surge in demand and stock prices. Energy stocks may also benefit, particularly in oil and gas, due to supply concerns. In modern conflicts, cybersecurity firms gain relevance and investor interest. Conversely, sectors such as airlines and travel often suffer from reduced demand and rising fuel costs. Consumer discretionary stocks also tend to lag, as individuals tighten their spending, and emerging markets near the conflict zone may see capital flight and economic disruption.
Investor behavior during wartime tends to shift toward caution and preservation.
Many seek refuge in safe-haven assets like gold, U.S. Treasuries, and the Swiss franc. Defensive sectors such as utilities, healthcare, and consumer staples also attract interest. At the same time, investors often reduce exposure to riskier assets, such as small-cap stocks or speculative technology firms. Ultimately, while the early stages of war usually trigger a bearish market response, the longer-term trajectory depends on the severity of the conflict and its ripple effects across the global economy.
