The war in Iran has no doubt driven volatility in global equity markets. However, researchers had pointed out the effects of heightened periods of volatility are rarely lasting.

The current situation in the Middle East has underlined a common question that arises during periods of geopolitical upheaval: Do periods of war lead to prolonged losses for equity markets?

Research by AllianceBernstein examined eight major conflicts over the past five decades and found though the S&P 500 was often volatile around the outbreak of hostilities, it typically stabilised over time.

The 2026 report, titled ‘How does war impact equity markets?’, cited several instances in which markets fell in the days and weeks after conflict began but returned to positive territory over subsequent months, suggesting equity markets have often proved more resilient than the initial shock of war might imply. On average, the S&P 500 was up 7 per cent one year after the onset of conflict, according to AllianceBernstein.

Across those eight conflicts incorporated into their analysis, the S&P 500 returned an average of 0.9 per cent one week after hostilities began, 2 per cent after one month, 3.8 per cent after one quarter, and 7 per cent over the following year.

War is not benign for markets, but BNP Paribas Asset Management argues its impact on equities depends heavily on the macroeconomic backdrop. Chief Market Strategist Daniel Morris says the current Iran conflict is best understood not as an isolated shock, but as a geopolitical event colliding with pre-existing market vulnerabilities.

Morris argues the closest historical parallel is the outbreak of the Gulf War in 1990, when global equities fell 18 per cent over two months and oil prices surged by 85 per cent. But he stresses today’s backdrop is materially different. The US economy is in a stronger position, even with growth slowing, and markets are not facing the same recessionary and credit-crunch conditions that amplified the sell-off in 1990.

Morris argues that the recent decline cannot be explained by oil alone. Alongside higher energy prices and growth concerns, equities have also been hit by the unwinding of crowded February positions; including: volatility in AI-linked sectors, weakness in financials, and worries around private credit.

For example, ‘the industry contributing the most to the 4.2% decline in the MSCI All Country World Index (in local currency terms since 27 February 2026) has been financials, driven at least partly by ongoing worries about private credit. The fall in capital goods reflects higher oil prices and worries about global growth, but not the drop in technology hardware and semiconductor stocks, which had gained significantly in February’, says Morris.

Stay the course: retain a long-term view

Dimensional Fund Advisors cautions investors against making asset allocation changes in response to geopolitical events, arguing that market shocks are a test of discipline rather than a cue to react.

“During the past few years, stock markets have had positive returns despite multiple wars being fought around the world,” analysts note. ‘This is not to trivialise the destruction wars bring and their impact on geopolitical risks. But history suggests investors may not help themselves by divesting from stocks.’

Taking a historical view of equity market drawdowns, Dimensional notes that although US equities have suffered intra-year falls of 20 per cent or more in 29 of the 98 calendar years since 1927, only six of those years ended with losses of more than 20 per cent, and in 10 cases the market finished the year in positive territory.

Analysis of previous periods of war-related market upheaval by Russell Investments reaches a similar conclusion pointing out that staying invested has historically been a more reliable strategy than trying to trade through periods of fear.

“Geopolitical shocks rarely leave a lasting imprint on markets,” says Russell Investments global chief investment strategist Paul Eitelman. ‘Investors who stayed invested and selectively added exposure during weakness have generally been rewarded’, says Eitelman.

The challenge for investors is to not to react to every headline, but to distinguish between short-term volatility and structural change, adding ‘Persistent geopolitical friction can raise risk premia and alter the diversification characteristics of assets – both of which can be critical considerations for investors’, says Eitelman.

In conclusion, while war can cause sharp market disruption, historical analysis of periods of geopolitical unrest confirm that the investment consequences are rarely uniform or lasting.

For investors, the more useful discipline in these periods may be to avoid making emotionally driven portfolio changes in response to war headlines, stay diversified, and focus on whether events alter long-term fundamentals rather than short-term sentiment.

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Sources:

BNP Paribas, ‘It’s not just Iran’ by Daniel Morris, Chief Market Strategist, BNP Paribas Asset Management, Research note 
Alliance Bernstein, ‘How does war impact equity markets', https://www.alliancebernstein.com/corporate/en/insights/investment-insights/how-does-war-impact-equity-markets.html
Russell Investments, From headlines to portfolio impact: Investing through geopolitical risk
Dimensional Fund Advisors, ‘Geopolitical Risk’, https://www.dimensional.com/au-en/insights/geopolitical-risk