How do wars affect the U.S. stock market? This discussion explores the Dow Jones Industrial Average’s performance during major conflicts, debunking the myth that wars always cause a market crash.
World War I: A Sharp Decline
The United States entered World War I on April 6, 1917. From December 1916 to December 1917, the Dow Jones Industrial Average fell about 38.25%, a significant drop. It took time for the war’s impact to hit, but when it did, economic anxiety led to widespread selling. This lasted about a year, reflecting uncertainty about the war’s effect on the U.S. economy.
World War II: Prolonged Volatility
Fast forward to World War II, the U.S. faced economic challenges after the 1929 market peak and crash, bottoming out around 1933. From 1936 to 1942, the Dow was down 41.47%, with significant volatility. On December 7, 1941, when war was declared, the market dropped 3.5%—notable but less severe than Black Monday 1987 or the 2020 COVID crash (12.93% in one day). Contrary to history lessons, World War II didn’t lift the economy quickly; by 1949, the market still hadn’t recovered to its 1929 peak, showing the war’s detrimental effect.
Korean War: A Surprising Bull Run
War was declared in Korea on June 25, 1950. Unlike earlier wars, the Dow gained 144% from 1950 to 1955, a strong period for investors. This shows that wars don’t always lead to a market crash, especially when economic impacts are limited.
Vietnam: Mixed Market Performance
The Vietnam conflict, starting in 1955 with no formal war declaration, ran until 1975. From 1955 to 1966, the Dow rose 143%, smoothing over early volatility. But from 1966 to 1980, growth was only 1.18%, averaging just over 0.1% annually—a “lost decade” similar to 1999-2010. Learn more about market history.
Persian Gulf and Iraq Wars: Varied Impacts
The Persian Gulf War began August 2, 1990, leading to a 21% Dow drop by October, driven by oil prices and global instability—a reminder of potential future risks in the Middle East. In contrast, Operation Iraqi Freedom, starting March 19, 2003, saw a .8% market rise on the announcement day, and a 30% gain from 2003-2004, similar to Korea’s bull run.
Key Takeaway
Wars don’t always cause a market crash. If a war significantly impacts the U.S. economy, like in World War I, II, or the Gulf War, the Dow often declines. But conflicts like Korea and Iraq show markets can thrive. Understanding war impact on stock market trends helps investors stay grounded. If you have any questions, feel free to contact or make an appointment with us here. Until next time, may God richly bless you.
Grayson Shaw is a registered investment advisor at Christian Values Investing in Statesboro. He studied finance at Georgia Southern University, and enjoys reading and playing baseball in his spare time (Go Spartans!)