How War Affects Your Investments: What Four Decades of Conflict Show
A war is not one event for a portfolio. It is dozens, arriving at different companies in different directions, and the index-level number hides nearly all of it. The pattern across four conflicts.
"Buy the sound of cannons, sell the sound of trumpets" is a 200-year-old market proverb. February 24, 2022 tested it in real time, and the results were brutal, fast, and very uneven.
The uneven part is what most coverage misses. A war is not one event for a portfolio. It is dozens of separate events, arriving at different companies in different directions, and the index-level number hides nearly all of it.
What actually happened after February 24
Within twelve months of the invasion of Ukraine:
- Rheinmetall, Germany's largest ammunition maker, roughly +134%, and it kept going, becoming one of Europe's best-performing large stocks of the decade as rearmament budgets locked in.
- US defense primes (Lockheed Martin, Northrop Grumman) jumped ~20–25% in a year the S&P 500 fell: that relative gap is the real story.
- Energy re-rated violently: ExxonMobil ~+43%, Occidental ~+58%, as Europe scrambled to replace Russian supply.
- The losers were existential: Sberbank's London listing went to essentially zero, German utility Uniper lost ~90% and was nationalized, and European airlines and Russia-exposed banks fell 30–50%.
Our war dashboard charts the defense stocks with the invasion date marked, so you can see the repricing happen.
Four decades, one pattern
Ukraine was not unusual. Broad markets have absorbed geopolitical shocks faster than almost anyone expects, across very different conflicts:
| Event | Index reaction | What followed |
|---|---|---|
| Iraq invades Kuwait, Aug 1990 | S&P fell roughly 15–20% into October | Recovered through 1991, strongly once Desert Storm began |
| US invades Iraq, Mar 2003 | Market bottomed within days of the invasion | S&P finished 2003 up roughly 26% |
| Russia invades Ukraine, Feb 2022 | Sharp drop, recovered within weeks | The bear market that followed was driven by rates |
| Israel–Hamas, Oct 2023 | Brief dip, largely faded within a month | Index rallied into year end |
Two honest caveats about that table. Four data points is not a law of physics - it is a pattern, and patterns break. And these are index reactions: investors holding concentrated positions in the wrong sector experienced nothing resembling the average.
Why sector effects last and index effects don't
The mechanism is budgetary, and budgets are documented years ahead of the earnings they produce. Military expenditure by country is tracked by SIPRI, and NATO publishes members' defence spending against its own target at nato.int.
The asymmetry has a mechanical explanation, and it is worth understanding because it is what makes war different from, say, a banking panic.
Wars change government budgets, and budgets are sticky. When Germany announced its €100bn special defense fund days after the invasion, that was not a sentiment shift - it was a multi-year procurement commitment. Order books filled. European defense spending pledged in 2022 was still converting into revenue in 2026. A headline fades in a week; a signed contract runs for a decade.
Energy re-prices through physical supply, not fear. Europe did not bid up oil and gas because it was frightened. It bid them up because it genuinely had to replace a large share of its gas imports and there was no quick substitute. That is a supply shock working through real cash flows, which is why it persisted long after the initial panic faded.
The index is a weighted average of a diversified economy. Most of the S&P 500's earnings had no exposure to the conflict whatsoever. When you own the index, you own the diversification that makes the shock look small.
The question that actually matters
Not "what will war do to the market?" - that question has no useful answer. The better question is: where am I exposed?
Three things worth knowing about your own holdings before a headline arrives:
- Energy dependence. Which companies buy a lot of energy as an input? Airlines, chemicals, shipping, aluminium. Their margins compress when energy spikes, regardless of where the fighting is.
- Regional revenue. What share of revenue comes from the region at risk? It is disclosed in annual reports and almost nobody reads it. Uniper's dependence on Russian gas was public information for years before it mattered.
- Supply-chain single points. Does the business depend on one country for a critical input? Semiconductors and Taiwan is the obvious case, but the same logic covers fertiliser, neon gas, and rare earths.
What a long-term investor should actually do
Mostly: nothing dramatic. Panic-selling a diversified portfolio into a geopolitical headline has been a reliably bad trade for a century, for the straightforward reason that by the time you have read the headline, the market has already priced it.
The useful work is quieter, and it happens in peacetime. Know your exposures. Hold enough diversification that no single region can wreck you. And be honest that buying defense stocks after an invasion is not insight - it is paying a premium for information everyone already has.
Where this leaves you
War is a sector event wearing an index event's clothing. The headline moves everything for a week; the budget moves a handful of industries for years. If you own a diversified portfolio, the first effect is mostly noise you can ignore. If you own concentrated positions, the second effect is the one that decides your decade.
Not investment advice. Figures are approximate price changes compiled from public market data and are illustrative rather than exact. Past performance does not guarantee future results.