Historical Market Resilience During Conflicts and the Case for Strategic Equity Exposure Now

In June 2025, global markets face a volatile backdrop of geopolitical tensions, from South Korea's presidential election to NATO's spending debates and Mexico's judicial reforms. Yet history shows that U.S. equities have consistently rebounded after crises, offering a compelling case for maintaining or increasing equity allocations today.

The Historical Pattern: Markets Recover Faster Than Geopolitical Storms

Let's revisit three defining moments when U.S. equities faced existential threats—and how they emerged stronger:

World War II (1941–1945): The Ultimate Test

The U.S. stock market bottomed in May 1942 at the height of military setbacks in the Pacific, a period Barton Biggs termed the “point of maximum bearishness.” Despite grim headlines, the market began its ascent by mid-1942, rising 50% by 1945. Counterintuitively, sectors like printing/publishing (+1,552%) and alcoholic beverages (+723%) outperformed defense stocks, underscoring the market's ability to reward contrarian bets.

Gulf War (1990–1991): Volatility, Then Triumph

The U.S. equity market rose 4.6% during the Gulf War's first days (Jan 16–17, 1991) and rebounded 15% within six months, despite the broader Gulf War recession. Federal Reserve rate cuts and fiscal stimulus accelerated recovery, illustrating how policy support can mute geopolitical risks.

9/11 Attacks (2001): A 24.8% Six-Month Rebound

The DJIA plummeted 14.3% in the week after 9/11 but surged 24.8% six months later, aided by aggressive Fed rate cuts (to 1% by 2003) and $1.3 trillion in tax cuts. The market's resilience proved that even catastrophic events could spark buying opportunities.

Why Current Geopolitical Risks Are Overblown

Today's tensions—South Korea's pivot toward neutrality, NATO's spending debates, and Mexico's judicial reforms—are no less daunting. Yet markets have shown they price in worst-case scenarios long before they materialize, much like they anticipated the Battle of Midway in 1942. Consider:

1. South Korea's Election (June 3, 2025): A Democratic Party win under Lee Jae-myung could ease North Korea sanctions and reduce reliance on U.S. military alliances. While this might spook investors, a DPK victory would likely stabilize regional trade, favoring sectors like tech and automotive.
2. NATO Summit (June 24–26, 2025): The push to raise defense spending to 3.5% of GDP could divert capital from civilian industries. However, this creates opportunities in defense contractors (e.g., Lockheed Martin) and cybersecurity firms.
3. Mexico's Judicial Elections: A stable judiciary could boost foreign investment in energy and infrastructure, benefiting U.S. firms with Latin American exposure.

The Case for Strategic Equity Exposure Now

The data is unequivocal: markets rebound swiftly after geopolitical shocks. Of 25 crisis events since 1940, the DJIA returned to positive territory within six months in all but four cases. Investors who sell during panics often miss the rebound.

Actionable Strategies for 2025

1. Reinforce Equity Allocations: Deploy 5–10% of portfolios to U.S. equities, focusing on dividend-paying stocks (e.g., consumer staples, utilities) and defensive sectors (healthcare, REITs).
2. Target Contrarian Sectors: Look for overlooked industries like semiconductors (post-WWII's printing/publishing equivalent) or renewable energy, which could thrive amid geopolitical realignments.
3. Leverage Policy Responses: Monitor Fed actions—any rate cuts or stimulus could amplify market gains, as seen post-9/11.

Conclusion: History Rewards the Brave

Markets have always been forward-looking, pricing in the end of conflicts long before they conclude. In 2025, the risks are real, but the playbook remains unchanged: buy the dip, diversify, and hold for the long term. Those who heed history's lessons will find that today's geopolitical storms are tomorrow's growth opportunities.

Investors should consult their financial advisors before making specific investment decisions. Past performance does not guarantee future results.