# This is How War Affects the Stock Market

Source: https://www.youtube.com/watch?v=R_KbC3RaIqw
Recap page: https://rapidrecap.app/video/R_KbC3RaIqw
Generated: 2026-03-08T13:32:57.376+00:00

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## Quick Overview

Historically, major geopolitical shocks and wars have resulted in short-term market drawdowns, but the S&P 500 typically recovers or rises over the following 12 months, with the average one-month return being negative 1.3% but the 12-month return averaging a positive 2.1%, suggesting that such events rarely cause sustained market damage unless accompanied by a recession.

**Key Points:**
- The average one-month return for the S&P 500 after major geopolitical shocks is negative 1.3%, but the 12-month return averages a positive 2.1%.
- The worst historical drawdown was following the Pearl Harbor Attack (Dec 7, 1941), resulting in a 19.8% total drawdown, with full recovery taking 307 days.
- The largest 12-month decline occurred after the Yom Kippur War (Oct 6, 1973), with the market down 43.2% one year later, which coincided with a recession.
- Geopolitical events rarely cause sustained damage; most events result in short-term volatility, with the market usually recovering within six weeks, except for major conflicts like WWII.
- If a recession is present during the geopolitical event, the one-month average return is significantly worse at negative 3.8% compared to negative 0.1% when no recession is present.
- The frequency of major drawdown events (20%+) has decreased over time; three such events occurred in the last six years, compared to only once per decade historically (excluding WWII).

![Screenshot at 08:19: A bar chart titled 'Max Drawdown After Event' visually ranks the most severe market drops following various geopolitical shocks, highlighting the Pearl Harbor Attack's 20.34% drawdown as the largest.](https://ss.rapidrecap.app/screens/R_KbC3RaIqw/00-08-19.jpg)

**Context:** The video analyzes the historical impact of major geopolitical shocks and wars on the U.S. stock market, specifically tracking the S&P 500 Index performance following these events using historical data compiled by LPL Financial. The analysis focuses on immediate one-day drops, total drawdowns, recovery times, and 12-month forward returns, differentiating between periods with and without concurrent recessions to gauge the true market impact of these external shocks.

## Detailed Analysis

The speaker examines historical data to determine the stock market's reaction to major geopolitical events, finding that while initial volatility and downside risk exist, the market has historically recovered quickly and often achieved positive long-term returns. Analyzing a table of events, the average one-month return after a shock is negative 1.3%, but the 12-month average return is positive 2.1%. The recovery time varies widely, from just 1 day (Kennedy Assassination) to 307 days (Pearl Harbor Attack). The data further separates performance based on whether a recession was occurring concurrently: if a recession was present, the one-month average return was negative 3.8%, whereas without a recession, it was only negative 0.1%. The worst historical drawdown was 43.2% after the Yom Kippur War (1973), which coincided with a recession. The speaker uses a logarithmic chart spanning from 1928 to 2024 to illustrate the long-term upward trend of the S&P 500, noting that most conflicts cause only temporary dips, with the market continuing its upward trajectory afterward, even though recent events like the Israel-Hamas War (2023) and Russia-Ukraine Conflict (2022) have caused notable dips on the chart. Furthermore, the video points out that the frequency of severe drawdowns (20% or more) has historically been about once a decade, but has increased recently, with three such events in the last six years.

### Historical S&P 500 Reaction to Geopolitical Shocks

- The average one-month return is -1.3%, but the 12-month average return is +2.1%
- Most drawdowns recover within six weeks, though extreme events like Pearl Harbor took 307 days to recover fully.

### Worst Drawdowns

- Pearl Harbor resulted in the largest total drawdown at -19.8% (using the first dataset) or 20.34% (using the second chart), while the Yom Kippur War saw the worst 12-month decline at -43.2%.

### Recession Context

- If a geopolitical event occurs during a recession, the short-term market impact is far worse (average 1-month return of -3.8%) compared to non-recessionary periods (average 1-month return of -0.1%).

### Market Performance During Major Wars (Bar Chart)

- World War II saw a 20.3% annualized return, while the Iraq War saw a 21.5% annualized return, showing positive market performance even during major conflicts.

### Frequency of Severe Drawdowns

- Severe drawdowns (20%+) have historically been rare (once per decade, excluding WWII), but three such events occurred in the last six years, indicating increased volatility.

![Screenshot at 00:07: The speaker introduces the core topic by asking rhetorical questions about fear, duration of market stress, and potential harm to jobs or the market, setting up the analysis of historical data.](https://ss.rapidrecap.app/screens/R_KbC3RaIqw/00-00-07.jpg)
![Screenshot at 01:21: A chart displays the S&P 500 Index from Feb 24 - Mar 24, 2022, showing a dip immediately following the Russian invasion of Ukraine before recovering to new highs.](https://ss.rapidrecap.app/screens/R_KbC3RaIqw/00-01-21.jpg)
![Screenshot at 02:28: A table titled 'How the S&P 500 Reacted to Major Geopolitical Shocks' is displayed, showing the event, date, total drawdown, and 1-year later return for various historical events.](https://ss.rapidrecap.app/screens/R_KbC3RaIqw/00-02-28.jpg)
![Screenshot at 10:00: A logarithmic chart spanning from 1928 to 2024 plots the S&P 500 Index level against major geopolitical events labeled along the timeline, illustrating the long-term upward trend despite numerous conflicts.](https://ss.rapidrecap.app/screens/R_KbC3RaIqw/00-10-00.jpg)