Market AnalysisMar 17, 20263 Min
War, Oil & Stock Markets: Why Panic Selling May Be Premature
Global equity markets have been wobbly since the start of the US-Israel war with Iran on February 28. The sudden spike in crude oil and gas prices in Europe and key Asian markets like South Korea, Japan and India has made investors nervous, forcing them to run for safety and seek defensive shares.
Japan’s Nikkei dropped below the 53,000 level for the first time since early February, trading down by around 10% since February 28. South Korea’s Kospi has also witnessed a drop of around 16% since the attack started on Iran. Indian equity markets have also seen relentless selling. The S&P 500 has dropped over 2% since February 28.
But, if history is any guide, they are little more than a pause before a sharp rebound. Investors who held their patience have been rewarded after the dust settles. The data from every major conflict tells the same story: the steeper the fall, the swifter the recovery. Here are a few examples:
World War 1 (1914-1918)
The Dow Jones Industrial Average had dropped by 11% within a month of the start of World War 1 in 1914. By the end of that year, the index dropped 34% even as markets were closed for nearly 4 months. However, by August 1915, the Dow pared its losses to regain its pre-war level, following a rebound of 53%. It surged further until November 1916 with a cumulative return of 107.17% from December 1914.
World War II (1939-1945)
The Dow dropped up to 20% in four months after the attack on Pearl Harbour in December 1941. However, the index rebounded later with cumulative returns of more than 87% from April 1942 to August 1945 (V-J Day).
Gulf War (1990-91)
During the Gulf War in 1990, the S&P 500 had dropped around 17% from its peak in about 2 months after Iraq invaded Kuwait. Similarly, the benchmark Indian stock index, Sensex, corrected around 16% in eight weeks.
However, the S&P 500 rebounded around 24% in 1991 after the conflict ended in the Middle East. Similarly, the 1-month return from the bottom for Sensex30 was 21%. (Source: Fortune India Instagram Post).
9/11 Terror Attacks (2001)
During the 9/11 terror attacks, the S&P 500 had dropped around 7.1% in a single day after markets remained closed for four days. However, the index rose by around 21% in the subsequent two and a half months. Similarly, Sensex had corrected nearly 18% within 2 weeks of the attack. But it recovered with 1-month returns of 18% and 3-month returns of 35% from the bottom.
Iraq War (2003)
The S&P 500 corrected around 14% during the buildup of war from December 2002 to March 2003. However, the key index jumped 26.97% in the following year. The fear of war also impacted Japan’s Nikkei index, which also dropped below 8,000 for the first time in 20 years in March 2003. But it rallied for four consecutive years after that.
Russia-Ukraine War (2022)
During the Russia-Ukraine war in 2022, the Euro Stoxx 600 dropped 3.2% on the day Russia launched the invasion. In that year, Euro Stoxx dropped ~12%. However, it recovered 12% in 2023 and continued its rally in 2024. S&P 500 shed 25% from its January 2022 peak and bottomed in October that year. Overall, the S&P 500 dropped over 18% in 2022 due to inflation and interest rate concerns. However, in 2023, it rebounded by 26%
The bottom line is that investors should avoid panic selling. Stock markets have time and again proven their resilience after major conflicts and geopolitical risks.
At present, high crude oil and energy prices have taken a toll on global markets. But if we go through International Energy Agency’s (IEA) February 2026 report, the current short supply is not a production supply-related issue. There is in fact a surplus of the commodity in the market. Supply is expected to reach over 108 million barrels per day against the demand of 104 million barrels per day by the fourth quarter of 2026, putting pressure on crude oil prices. So, energy prices are expected to cool down as soon as the supply disruption in the Strait of Hormuz ends.
https://www.isectors.com/blog/stock-markets-times-uncertainty
