Market Returns During Past Geopolitical Conflicts
Markets often dip briefly after geopolitical shocks, then recover. History shows strong 1-year returns—investors shouldn’t avoid stocks during conflicts.
We noted in a recent piece that geopolitical conflicts don’t have to result in disappointing subsequent stock returns because markets are forward-looking and set prices for positive expected returns. But how have markets actually fared during previous geopolitical incidents? Based on 36 years of history, the answer has largely been good news.
While the classification of an event as a geopolitical conflict is subjective, we identified 21 global events since 1990. Charting returns starting from the onset of these events, we see slightly negative returns on average for the first five days, but then positive average returns over subsequent horizons. This would seem consistent with a market resetting prices in light of negative news at the start, which then sets up a positive expected return in the absence of further disappointing developments. After one year, the average return was 14.6%. By comparison, the average return across all rolling 12-month periods was 12.4%.
This is not to imply we’re “out of the woods” when it comes to a market downturn. The 12-month market return was negative for two of the 21 events. There’s always the possibility for worse-than-expected developments, which might provoke further negative reaction from markets. But the takeaway from these data is that investors shouldn’t shy away from stocks during a period of global conflict.
EXHIBIT 1
Average US Stock Market Returns Following Major Geopolitical Events
1990–2025
Glossary
Expected return: An estimate of average anticipated returns informed by historical data.
Index Descriptions
Fama/French Total US Market Research Index: July 1926–present: Fama/French Total US Market Research Factor + One-Month US Treasury Bills.
Results shown during periods prior to each index’s inception date do not represent actual returns of the respective index. Other periods selected may have different results, including losses. Backtested index performance is hypothetical and is provided for informational purposes only to indicate historical performance had the index been calculated over the relevant time periods. Backtested performance results assume the reinvestment of dividends and capital gains. Eugene Fama and Ken French are members of the Board of Directors of the general partner of, and provide consulting services to, Dimensional Fund Advisors LP.
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Investments involve risks. The investment return and principal value of an investment may fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original value. Past performance is not a guarantee of future results. There is no guarantee strategies will be successful.
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