Military conflicts haven’t derailed long-term stock growth

History is composed of challenging times. As a global market strategist, my job is to talk about military conflicts and other historic events in the context of stock markets, and to offer some perspective for investors. With that in mind, it’s important to remember that, over more than 120 years, markets have experienced long-term growth despite war, recession, oil shocks, political assassinations, and much more.

While military conflicts test investors’ resolve to stick to their investment plan, history suggests these events have not derailed the long-term growth of financial markets. I implore investors to maintain a long-term perspective.

Stock market returns following geopolitical conflicts

If there’s a factor that impacts market performance, there’s an index to measure it. Geopolitical risk is no exception. The chart below illustrates 11 points in history where we experienced a peak in the Geopolitical Risk Index, and it shows the return of the S&P 500 Index 12 months after that peak. In most cases, the stock market rose significantly in the year following peak geopolitical risk.

Stocks have made significant returns in the 12 months following peak geopolitical risk

S&P 500 Index returns 12 months after a peak in the Geopolitical Risk Index

Three things for long-term investors to focus on

While military conflicts understandably generate concerns about the potential market impact, I believe long-term investors should focus on three questions:

1. What’s the outlook for the economy?

Ultimately, I believe investors should stay focused on the businesses that are going to harness innovations such as artificial intelligence and robotics, develop treatments for debilitating diseases, evolve the nation’s energy sources, and invent new technologies and industries that aren’t even on the radar. History suggests that innovations — and investment opportunities — will continue irrespective geopolitical difficulties.

2. What’s the expected path of Federal Reserve monetary policy?

For all the focus on geopolitics, I’d argue that monetary policy matters more. The old adage holds true: Don’t fight the Fed. Historically, the economy has been hurt or helped by monetary policy conditions.

3. Does this military conflict change the answer to either of those questions?

Typically, the answer is no, so long as the conflict remains contained or regional. And that can run counter to what some investors might expect. Consider this example: The MSCI Poland Index has been one of the world's best-performing indices since Russia invaded Ukraine, climbing 54.15% from the day of the invasion on Feb. 24, 2022, through May 2024.¹ That’s not an outcome many investors might have expected in the earlier days of the conflict.

Stick to long-term investing plans

While unnerving, geopolitical conflicts shouldn’t change investors’ long-term investment plans, in my view. History has shown that other factors — economic growth, business innovation, and monetary policy — drive the path of the markets.