Wall Street's Biggest Drop Since the Gulf War: What About the Iran War?

Jakarta, CNBC Indonesia - Global geopolitical tensions and the escalation of military actions between nations are frequently among the principal factors triggering investor concern and large-scale selling by market participants.

Following the outbreak of the conflict on 28 February 2026 in Iran, the S&P 500 rose by 0.04% at the opening of trading on Monday 2 March 2026, reflecting relatively limited investor worry.

Although the gain was modest, the index began to fall on Tuesday 3 March 2026, slipping 0.94%, in line with historical patterns where markets experience a brief sell-off.

Even so, at yesterday’s close on Wednesday 4 March 2026 the index closed up 0.78%, indicating investor calm amid the evolving geopolitical dynamics.

Psychologically, institutional and retail investors tend to relocate their portfolios to safe-haven instruments in the early stages of a crisis.

Nevertheless, a deeper review of historical data since 1979 shows that the S&P 500, the main benchmark of the US stock market and a global barometer, has historically displayed a robust ability to withstand shocks and recover.

Based on quantitative data, the impact of a conflict’s outbreak on stock markets is generally temporary and rarely disrupts long-run growth trends.

Here is a summary of the percentage movements of the S&P 500 measured from the start date of various global conflicts:

Limited volatility in the early phase of a crisis

Referring to the metrics above, the movement of the S&P 500 over a one-week to one-month period after the outbreak of the conflict has been volatile but still fairly moderate. The S&P 500, the benchmark index on Wall Street, has moved within a range that remains moderate.

The most significant negative reaction occurred during the Iraqi invasion of Kuwait in August 1990, i.e. the Gulf War, when the index fell 4.4% in the first week and corrected more deeply to -9.3% in the first month.

This was heavily influenced by shocks to global oil supply, triggering dramatic energy price spikes at the time and directly threatening corporate profit margins.

Conversely, in modern cases such as the Crimea annexation (2014) or Russia’s invasion of Ukraine (2022), markets did not record a correction in the first week.

This suggests that early market panic is often driven more by short-term uncertainty (noise) than by real fundamental economic changes.

Dominance of Macroeconomic Factors in the Long Term

Market performance trends show a much more directional and stable pattern when viewed over a 12-month period after the conflict begins.

From eight major events recorded in modern history, six of them managed to deliver positive returns within one year.

Gaza War conflict (October 2023) recorded the highest rise with S&P 500 growth of 32.2%, followed by the US invasion of Iraq (2003) at 27.0%.

A sharp decline occurred during the period of the US invasion of Afghanistan (2001) with a correction of -26.7% in 12 months. However, further analysis shows that this weakness was fundamentally driven by the dot-com bubble and the recession, depressing valuations rather than solely due to the military invasion.

Similarly, the -6.1% drop following Russia’s invasion of Ukraine (2022) occurred as the Fed’s monetary tightening cycle to curb inflation post-pandemic was in progress.

Focus on Fundamentals and Valuation

Examining the historical data confirms a crucial principle in the dynamics of financial markets: geopolitical shocks rarely serve as the sole catalyst that reverses long-term trend directions.

Market attention ultimately returns to corporate earnings growth prospects, liquidity in the market, and the trajectory of central bank policy rates when responding to events.

These fundamental conditions have proven to have far more influence in shaping valuations and stock index movements than temporary fluctuations arising from geopolitical sentiment.