What happens to the market when war or a global crisis breaks out? We dove in to check, and we have updates!
An exclusive summary of 3 major studies revealing the truth about S&P 500 behavior following unusual geopolitical events – from world wars to modern terror attacks.
When the world shakes – whether from war, an attack, an assassination, or a military crisis – it seems obvious to us that the market will crash.
The gut feeling: "Everything is collapsing" – but when examining the numbers over almost a century, a completely different picture emerges.
We analyzed over 40 dramatic historical events, based on three separate data sources:
1️⃣ Deutsche Bank study – which focused on the number of days it took for the market to recover from the event.
2️⃣ Carson Investment Research survey – which reviewed S&P 500 performance after one, three, six, and twelve months.
3️⃣ LPL Research study – which focused on declines the day after, at the low point, and the number of days until returning to the previous price.
What really happens the day after?
LPL data shows that the average index decline the day after a severe geopolitical event stands at about 1.2%.
In extreme cases, such as the Pearl Harbor attack, the one-day decline was almost 4%, and in very rare cases (Germany's invasion of France in 1940) – almost 20%.
But it's important to understand:
Even in the most dramatic events – such as the Yom Kippur War, the invasion of Iraq, the September 11 attacks, and the invasion of Ukraine – the market did take a short-term hit, but recovered within a not-too-long period.
What is the market recovery timeframe after an emergency event?
According to Deutsche Bank, the average recovery time is 119 days – about 4 months.
– but history shows that in many cases, it's only a few days.
For example:
1️⃣ Six-Day War (1967): 1.5% decline, recovery in one day.
2️⃣ Yom Kippur War (1973): only a 0.1% decline, recovery within 3 days.
3️⃣ Kennedy assassination (1963): 2.8% decline, recovery within 4 days.
4️⃣ Construction of the Berlin Wall (1961): minor 0.7% decline, rapid recovery within 4 days.
And the events that took the longest to correct were:
1️⃣ Germany's invasion of France (1940) – recovery that lasted over 1,100 days.
2️⃣ Pearl Harbor attack (1941) – 19.8% decline, recovery within 306 days.
And what happens over time – a month, a quarter, a year?
Here the picture becomes even more optimistic.
A Carson Investment study found that when examining market performance one month, three months, six months, and one year after an event, the index generally climbs – and sometimes powerfully.
After one month: in 45% of cases, the index is already up.
After 3 months: in 65% of cases – the index is higher.
After half a year: in 60% of cases – positive return.
After one year: in 65% of cases – the index is significantly above pre-event levels.
Here are some examples: 1️⃣ Invasion of Ukraine (February 2022): the index actually rose by 3.5% in the first month, and by 6.3% within a year.
2️⃣ 9/11 attacks: sharp decline of 11.6%, but recovery within a month.
3️⃣ Gulf War (1990): 16.9% decline, full recovery within half a year.
4️⃣ Iranian drone attack in April 2024: the index actually rose by 0.9% after one month, and by 13.8% within half a year.
Exceptional events with particularly severe impact:
There are exceptions, of course. Events like Pearl Harbor (1941), the invasion of Iraq (1990), and the 2008 financial crisis also led to double-digit declines that lasted many months. But in most of them – the general economic context was no less important than the event itself.
A few words in summary
While the market sometimes reacts with immediate panic, history often indicates that it is a temporary correction.
The critical time is the first 30–60 days – that's where the initial reaction occurs.
Throughout history, the market has shown exceptional resilience even in the face of severe shocks.
Panic can be an expensive choice – those who sold the day after often missed significant gains.
Geopolitical events, in most cases – create temporary noise, but do not change the long-term economic trend.