When a war breaks out

Financial markets usually react very quickly because investors suddenly face uncertainty about the economy, trade, energy, and political stability. The reaction often follows a common pattern.

1. Stock Markets Usually Fall First 

The first reaction is often a sharp drop in stock markets.

Why it happens:

• Investors fear economic slowdown
• Companies may face supply disruptions
• Trade routes and global supply chains can be affected
• Governments may impose sanctions

Examples:

• After the Russian invasion of Ukraine in 2022, global markets dropped sharply in the first days.
• At the start of the Gulf War in 1990, U.S. stocks fell about 16% before recovering later.

However, interestingly, markets often recover after the initial shock once uncertainty becomes clearer.

2. Oil and Energy Prices Usually Rise 

War often disrupts energy supply, especially if major producers are involved.

Result:

• Oil prices jump
• Gas and electricity costs rise
• Inflation may increase

Example:

• After the Russian invasion of Ukraine, oil briefly surged above $120 per barrel.

Energy companies often perform better during wars.

3. Investors Move to “Safe Haven” Assets 

When uncertainty rises, investors move money to safe assets.

Typical safe havens:

• Gold
• Government bonds
• US dollar
• Defensive stocks

Gold has historically risen during crises such as:

• World War II
• Cold War tensions
• The Russian invasion of Ukraine

4. Defense and Military Companies Rise 

War increases government spending on defense.

Defense companies often rally, such as:

• Lockheed Martin
• Northrop Grumman
• Raytheon Technologies

Governments typically increase military budgets during conflict.

5. Long-Term Market Impact Is Often Smaller Than Expected

One surprising historical pattern:

Markets often recover faster than people expect, even during wars.

For example:

The reason: businesses keep operating and economies adapt.

Summary of Typical Market Reactions