How Wars And Geopolitical Conflicts Can Affect Stock Market Performance:
How Wars And Geopolitical Conflicts Can Affect Stock Market Performance: What History Shows And How Investors Can Prepare For Volatility
Sep 29, 2026 Sergei Klebnikov Editorial Staff, J.P. Morgan Wealth Management
Geopolitical conflicts can drive short-term market volatility, but history shows the initial sell-off is often more about uncertainty than a lasting change in long-term returns.
The biggest risk to watch is whether the conflict disrupts critical supply chains in ways that spill into inflation, financial conditions, corporate earnings and broader economic growth – energy is one common channel, but not the only one.
What investors can do: Anchor decisions to your plan (time horizon and cash needs), stay diversified, rebalance with discipline and avoid headline-driven moves like panic selling.
When war dominates the headlines, it’s easy to assume stocks should fall in a straight line. But history suggests the first sell-off is often driven more by uncertainty than by a permanent shift in long-term returns – meaning markets can reprice risk quickly, sometimes before the story is fully clear.
In reality, market declines tied to geopolitics are often driven less by headlines themselves and more by what the event could mean for the economy: whether critical supply chains are disrupted, how that pressure feeds into inflation, and what it implies for interest rates, corporate earnings and overall growth.
When supply disruptions raise costs, the impact can show up not only in company margins but also in household purchasing power and consumption, which ultimately matters for earnings.
Every conflict is different, outcomes are uncertain and markets can remain volatile as events unfold. A useful way to frame geopolitical risk is as a set of potential supply and demand shocks – for example, disruptions to energy, shipping lanes, industrial inputs or technology chokepoints – and then to ask how those shocks transmit through inflation, financial conditions, earnings and growth.
History can be a useful anchor for decision-making – not for making predictions – and may help investors distinguish short-term noise from longer-term fundamentals.
Below, we’ll cover how markets have tended to react to wars and major geopolitical events; what usually drives sustained moves beyond the initial shock; and practical steps long-term investors can take to prepare for geopolitical risk without overreacting.
How wars can move the stock market (and why reactions may vary)
War and other geopolitical shocks tend to move markets through two forces: a sudden surge in uncertainty and the economic ripple effects that follow. That’s why the initial reaction can be sharp even if the longer-term impact ends up being more muted – or simply different – than the headlines imply.
In the initial shock phase, markets may respond to the unknowns. When outcomes are unclear, investors may quickly reassess the range of possible economic paths and reprice risk.
Volatility may jump and equities may sell off. In credit markets, that repricing can show up as investors demanding more compensation to hold riskier or more directly impacted debt. That can push credit spreads wider and effectively tighten financial conditions.
As more information emerges, markets often shift into a second phase: repricing based on what the conflict may mean for the economy and policy. Reactions can diverge depending on whether the situation threatens critical supply chains (energy is one example), disrupts production inputs, alters trade routes, or meaningfully affects major economies. Policy responses can also be pivotal, from sanctions and export controls to changes in fiscal spending.
Ultimately, sustained market moves are often driven less by the event itself than by whether it changes the macro path via inflation, interest rates, corporate earnings and economic growth.
Investors may want to focus on whether geopolitical developments are transmitting through the economy and markets – especially through critical supply chains and production, economic activity and demand, inflation expectations, financial conditions, and corporate profitability.
What history shows: Wars often trigger volatility more than lasting declines
History suggests geopolitical events like wars often cause short-lived volatility, and – barring a major economic disruption – the market impact tends to fade over time. In many cases, that looks like an initial, uncertainty-driven drawdown followed by stabilization or recovery as outcomes narrow and attention returns to fundamentals like earnings, inflation and policy.
Recent episodes suggest markets have been recovering from geopolitical flare-ups more quickly: After a nearly 10% drop in the S&P 500 at the outset of the Iran conflict earlier this year, the benchmark index recovered to pre-conflict levels in just 11 trading sessions. But the more durable takeaway for portfolios is that because the shock phase is dominated by uncertainty and shifting probabilities, market leadership can rotate as the situation evolves – reinforcing why portfolios are typically better built for a range of outcomes.
One reason geopolitical-related sell-offs may prove so short-lived is that markets are forward-looking. Prices adjust quickly to reflect new probabilities – sometimes within days – so once the “shock” is incorporated, further headlines may have less impact unless they change the economic outlook in a material way.