ThePlainBagel discusses the impact war has on markets in his latest video which, unfortunately, is very relevant right now.
What the video covers: war, GDP, and your portfolio
The video starts with the economy itself. War destroys productive capacity in the countries fighting it, which is straightforward, but it also pumps government spending into defense industries, which is why the US economy roared back from the Great Depression during World War II. GDP can rise during wartime even while the underlying human and economic costs are enormous, so headline growth numbers during a conflict deserve skepticism.
For countries not directly involved, the damage arrives through side channels. The video looks at energy prices first: net oil importers get squeezed when supply is threatened, which is what happened after Russia invaded Ukraine in 2022 and what markets feared when the Israel-Iran conflict escalated in June 2025. Trade routes get disrupted, shipping costs spike (the Red Sea attacks forced carriers like Maersk to reroute), and inflation follows. These spillover effects are usually how a distant war reaches your wallet.
Then comes the question investors actually care about: what happens to stocks? The historical record is calmer than the headlines suggest. Studies of major conflicts find the initial market reaction is typically a modest dip followed by recovery. The Gulf War knocked about a percent off US stocks in a single day; the market impact of the Afghanistan and Iraq wars was essentially zero on day one. Across decades of major events, from assassinations to invasions, the market has on average risen slightly on the news itself. Wars move oil and headlines far more reliably than they move diversified stock portfolios over any meaningful holding period.
The takeaway is practical, not academic. Selling your investments because war broke out somewhere means betting you can predict both the conflict and the market’s reaction to it, and history says most investors get both wrong. That advice also applies to what to do when the stock market is crashing: a diversified portfolio held through geopolitical shocks has been the winning position far more often than market timing.
