Historical trends indicate that certain sectors tend to thrive during times of war. Maintaining a balanced portfolio, centered around defensive assets, can help mitigate risks while also capitalizing on potential growth. By examining past patterns, investors can identify which sectors perform well during conflicts, enabling more informed investment decisions.

Although war often introduces uncertainty to global markets, astute investors can discover hidden opportunities amidst the chaos. Historical analysis reveals effective investment strategies for navigating periods of conflict.

One prevalent misconception is that markets invariably decline during wartime. In fact, the S&P 500 has historically shown resilience during such periods. As demonstrated in the following chart, markets often perform better than expected during wars.

S&P 500 Performance Amid Geopolitical Events

Top-Performing Sectors in Wartime

Certain industries consistently excel during times of conflict. Gold, considered a safe-haven asset, experiences notable gains during geopolitical instability. For example, it surged by 70% during World War II (1939-1945) and rose by 16% during the Crimean crisis in 2014.

The defence sector also tends to outperform, boosted by increased military spending. During the Gulf War (1990-1991), defense stocks surpassed the S&P 500 by 30%. Similarly, following the 2022 conflict in Ukraine, the S&P Aerospace & Defense Select Index rose by 12%, while the broader S&P 500 declined by 19%.

Energy stocks, particularly oil and gas, often experience price spikes during conflicts due to supply disruptions. For instance, the Yom Kippur War in 1973 triggered a 400% surge in oil prices, and during the first six months of the Gulf War, energy stocks outperformed the S&P 500 by 25%.

Commodities, especially essentials like food and pharmaceuticals, remain relatively stable in times of war. Consumer staples (NYSE: XLP) delivered an average return of 5.3% annually during World War II, and outperformed the market by 15% during the 2008 financial crisis, which coincided with various regional conflicts.

Government Bonds: A Reliable Option

Government bonds from stable nations are particularly attractive during wartime. For example, during the Korean War, U.S. Treasuries offered a 2.5% annual yield, providing a reliable safe haven for investors. In 2022, as tensions escalated in Ukraine, demand for German Bunds surged by 22%, demonstrating their appeal during times of geopolitical turmoil.

Which Sectors Perform Best?

Data shows that defensive sectors tend to outperform the broader market by an average of 8.5% during conflicts, with impacts on markets lasting from 6 to 18 months.

Building a Hypothetical Wartime Portfolio

Drawing on historical trends, a balanced wartime portfolio might include the following allocations:

  • 30% in government bonds
  • 25% in defensive stocks (e.g., consumer staples, healthcare)
  • 15% in gold and other precious metals
  • 10% in energy stocks
  • 10% in defense stocks
  • 10% in cash for liquidity

This mix balances safety and growth potential, positioning investors to seize opportunities that arise during times of war.

While war presents challenges, it also offers unique opportunities for investors who can interpret historical trends and market behaviour. A cautious, well-diversified portfolio is essential, and it’s important to remember that peace and stability are the ultimate drivers of long-term economic growth.