Mid-East Wars – Historical Outcomes

Peter W. Tuz, CFA, CFP®, President & Portfolio Manager

Although our main concern is and should always be the human toll of all conflicts, our day job requires us to think about the effect of conflicts and our clients’ portfolios. The key questions are: will the current Mid-East conflict cause markets to drop substantially, for how long, and what do I do in the meantime?

The answer, in a nutshell, is that it is doubtful markets will drop substantially, and in three months, we are likely to be about where we were before the conflict started, while in six months and one year, we are likely to be above where we were before the conflict started.

Taking the major Mid-East conflicts of the past and looking at the results tells an interesting story. According to ChatGPT and Gemini, the past conflicts resulted in the following:

The first Mid-East war in fairly recent history was the Six-Day War that began in June 1967. Markets fell at first, but the S&P 500 Index (“S&P 500”) recovered quickly. It was up 4.8% after three months, 4.2% after six months, and 9.9% after one year.

The next major Mid-East conflict was the Yom Kippur War of October 1973. This war was accompanied by the first OPEC oil embargo on the U.S. and any allies of Israel. It led the country into a severe recession at a time when inflation and interest rates were high. Its effect on the stock market was devastating. The S&P 500 fell 12.5% in 90 days, 15.8% in six months, and 36.8% after one year.

As many of you remember, next was the invasion of Kuwait by Iraq in August 1990. Largely due to fears that the price of oil would skyrocket indefinitely, the S&P 500 fell 4.7% after three months, but after six months and the start of Operations Desert Shield and Desert Storm, the S&P 500 was up 9.5%, and after a year, the S&P 500 was up 17.7%.

The invasion of Iraq, called Operation Iraqi Freedom, began in March 2003. Despite some fears of a long and costly conflict, the war was won easily, and markets reflected this with a gain of 16.7% for the S&P 500 after three months, a gain of 20.4% after six months, and a 32.8% gain after one year.

The Israel-Hamas battles that began after Israeli hostages were taken from a music festival in October 2023 resulted in gains of 12.8%, 19.6%, and 36.0%, respectively, after three months, six months, and one year.

Lastly, “Operation Midnight Hammer,” the bombing of Iranian nuclear facilities that started on June 22, 2025, saw gains of 12.2% in the S&P 500 three months later and gains of 15.3% by December. The one-year anniversary of this is still several months away.

So, in five of the six Mid-East conflicts, markets were up one year after the start of the conflict. This is significantly better than the overall performance of markets, rising roughly 70% of the time after one year, depending on the period studied. More important factors to market performance are probably what else is going on in the U.S. economy at the time of the conflict than the conflict itself.

So far, the effect on the S&P 500 has been minimal. As of March 4, the index was down about 2.0% from the 7004.82 high reached on January 28th of this year. Could it fall further? Certainly. At year-end 2025, markets were highly valued by various historical measures. Is it worth panicking over? Probably not. Oil prices have now gone up roughly 10% since the conflict began. Much depends on whether shipping resumes quickly through the Strait of Hormuz, through which about 20% of the world’s oil flows. The higher oil prices have already resulted in higher gas prices in the U.S. All other things being equal, this will mean some drop in consumer spending. Travel, especially international travel, will probably suffer some as well. Airline and cruise line company stocks have fallen between 5% and 13% since the conflict began. But defense company stocks have risen and generally are at all-time high prices today. The same is true for major oil companies, although they are showing some signs of peaking. Of course, if the conflict results in a 9/11 type terrorist event or worse, all bets are off.

In short, markets seem to expect a conflict limited in scope to the affected area and not something that is going to spread into a significant global economic downtrend. Which brings us to the last question: should investors do anything differently than they were doing pre-crisis? If you were happy with the way your assets were allocated before the crisis began, the answer is probably no. As we have said before, most people should have enough liquid assets to cover major expenses for a year or two, so there is no need to rely on selling stocks to cover these expenses.

As always, we are here to discuss your investment and financial planning needs.