Thursday, July 16, 2026: the Dow fell 0.3%, the S&P 500 lost 0.4%, and the Nasdaq dropped 1.1%, with the United States carrying out strikes against Iran for a fifth consecutive night and Iran's Revolutionary Guard holding the Strait of Hormuz closed. Watching a screen of red numbers next to war headlines makes selling feel like the responsible move. A century of market data says something more specific: it depends on what kind of conflict this is.

The short answer

In most wars and geopolitical shocks since World War II, selling stocks would have been the wrong call: the S&P 500 has fallen an average of about 6% from shock to trough and typically recovered within roughly a month, with stocks higher a year later after 73% of armed conflicts. The exception is a conflict that disrupts a critical commodity, especially oil. Those events, including the current one, have historically produced deeper, slower drawdowns because they feed directly into inflation and interest rates rather than just investor sentiment. That distinction, not the war itself, is what should shape your decision.

What's actually happening right now

A ceasefire between the United States and Iran that had held since June 17 broke down in mid-July. Over the weekend of July 12 and 13, the U.S. struck more than 80 targets inside Iran, and Iran's Revolutionary Guard responded by closing the Strait of Hormuz again, the waterway that roughly a quarter of the world's seaborne oil trade and a fifth of its liquefied natural gas pass through. Traffic through the strait fell from a normal 18 to 22 vessels a day to as few as 6 in a 12 hour window, with roughly 230 loaded oil tankers sitting in the Gulf with nowhere to deliver their cargo. The two land bypass routes around the strait, a Saudi pipeline and a UAE pipeline, together cover less than 35% of normal transit volume and offer no relief at all for LNG exporters.

Brent crude jumped nearly 8% to just over $82 a barrel when the strait closure was announced, and has stayed close to one month highs since, trading around $85 by July 16. The CBOE Volatility Index, the market's fear gauge, spiked to 17.40 on July 13 before easing to 15.67 by July 15, an elevated but not extreme reading. Thursday's equity selloff was compounded by a separate story, a two day slide in semiconductor stocks on AI valuation concerns, which is its own issue covered in is the AI stock boom a bubble.

What history says about markets during wars

Researchers have studied how the S&P 500 reacted to 20 major post-World War II military interventions and hostilities. The pattern is more orderly than the headlines suggest:

  • The average drawdown was about 6%, measured from the initial market reaction to the trough.
  • In 19 of those 20 events, the market took an average of just 28 days to climb back to its pre-shock level.
  • Stocks were higher a year after the initial event in 73% of armed conflicts since World War II.

Individual episodes vary widely. When Iraq invaded Kuwait in 1990, the S&P 500 fell 15.9%, but when Operation Desert Storm began on January 17, 1991, the index surged more than 10% in the following 30 days. After the September 11, 2001 attacks, the Dow fell 7.1% the day markets reopened and the S&P 500 was down 11.6% from its pre-attack close within days, then recovered that loss within about a month. Russia's invasion of Ukraine in February 2022 produced a milder initial decline of about 7.4%, but the S&P 500's return over the following 12 months was negative 5.86%, a drag that researchers attribute mainly to the Federal Reserve's most aggressive rate hiking cycle in four decades running at the same time, not the war itself. Three years after that invasion, the index was up 13.48%.

Sentiment shock (most wars)
A conflict that raises uncertainty and headline risk without disrupting a critical commodity or supply chain. Markets typically fall, then recover within weeks as the initial fear fades and fundamentals reassert themselves. Most post-WWII conflicts fall into this category.
Oil supply shock (the exception)
A conflict that disrupts the physical flow of oil or another critical commodity. The 1973 Yom Kippur War and Arab oil embargo and the 1990 Gulf War both produced double digit S&P 500 losses, 16.1% and 15.9% respectively, deeper than the average sentiment shock, because the damage runs through the real economy, not just through fear.

Why an oil supply shock is a different animal

A stock's price reflects the value today of a company's expected future profits, discounted back using a rate closely tied to where interest rates sit. A pure sentiment shock scares investors for a few weeks and then fades, leaving that math largely intact. An oil supply shock is different: it pushes up energy costs directly, which shows up in the next inflation report, which changes what the Federal Reserve is likely to do with interest rates, which changes the discount rate used to value every stock, not just energy stocks. This is the same mechanism covered in how the CPI report affects the stock market and investing when interest rates rise, just triggered by a tanker queue in the Persian Gulf instead of a jobs number.

That is precisely the mechanism now in motion. Heading into the Federal Reserve's July 28 and 29 meeting, market odds of a rate hike, not a cut, have been rising, a reversal from where sentiment sat earlier in the year, and oil driven inflation risk is a documented part of that shift. See what the June 2026 Fed decision means for your money for how quickly these odds move as new data arrives.

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A full closure held for weeks would be unusual territory. The 1973 and 1990 episodes are the closest precedents for a genuine, sustained oil supply disruption, and both produced above average, multi week drawdowns. As of mid-July 2026, the strait is constrained rather than fully sealed, and it is not yet clear how long the current disruption lasts. That uncertainty, not the war itself, is the honest reason to pay closer attention to this conflict than to a typical geopolitical headline.

The honest counterargument: this time could look worse on paper before it looks better

The historical record above is genuinely reassuring, and it would be dishonest to lean on it without naming where it could fail to repeat:

  • Stagflation risk is the real difference from most past shocks. A war that raises inflation while growth is already soft can push the Fed toward higher rates at the same time the economy weakens, a combination that historically hits stock valuations harder than a sentiment shock the Fed can simply cut rates through.
  • The AI valuation selloff is happening at the same time, for unrelated reasons. When two separate stressors hit at once, a war driven shock and a valuation reset in the market's most crowded trade, the combined drawdown can run deeper and longer than either would produce alone, echoing how an unrelated rate hiking cycle deepened the damage after the 2022 Ukraine invasion.
  • Averages hide the tail. A 6% average drawdown across 20 events means some were far smaller and some, like the 1973 and 1990 oil shocks, were far larger. Which bucket this event lands in depends on how long the Strait of Hormuz stays constrained, a question with no reliable forecast.

None of that changes the core conclusion. It sharpens it: the evidence still argues against selling on a headline, but it also argues against assuming a repeat of the median 28 day recovery is guaranteed this time.

What a beginner should actually do

  1. Do not sell based on a war headline alone. In 73% of post-WWII conflicts, stocks were higher a year later. Selling into the initial drop has historically meant selling near the bottom, not avoiding it.
  2. Separate the two stories moving markets this week. The geopolitical shock and the semiconductor selloff are different problems with different timelines. Conflating them makes both harder to reason about.
  3. Watch oil and inflation data, not just headlines, for the real signal. A short lived spike that fades is a sentiment shock. A sustained rise that shows up in the next CPI report is the oil supply shock scenario that has historically done more damage.
  4. Check your bond and cash exposure against the same rate story. See should beginners buy bonds now and where to keep cash when rates are high for how a shift toward higher rate odds touches more than just stocks.
  5. Keep contributing on schedule. See time in the market beats timing the market for why a fixed schedule has outperformed trying to trade around individual weeks like this one.
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The actionable takeaway: most wars are sentiment shocks that fade within weeks, and selling into them has historically cost more than it saved. This one carries a genuine oil supply risk on top of the sentiment shock, which is the specific thing worth monitoring, not the war coverage itself.

The quick version

  • Across 20 major post-WWII military conflicts, the S&P 500 fell an average of 6% from shock to trough and recovered within about 28 days in 19 of those 20 cases
  • Stocks were higher a year after the shock in 73% of armed conflicts since World War II
  • The exception is a conflict that disrupts a critical commodity: the 1973 oil embargo and 1990 Gulf War both produced double digit S&P 500 losses, deeper than the average sentiment shock
  • As of July 16, 2026, Iran's closure of the Strait of Hormuz, a waterway carrying roughly a quarter of world seaborne oil trade, has cut transit traffic sharply and pushed Brent crude to one month highs near $85
  • Oil supply shocks matter more to markets than sentiment shocks because they feed directly into inflation, which feeds into Federal Reserve policy, which changes the discount rate used to value every stock
  • Rate hike odds for the Fed's July 28 to 29 meeting have been rising, partly on oil driven inflation risk, a reversal from earlier in the year
  • The honest risk this time is two unrelated stressors, the conflict and a separate semiconductor valuation selloff, landing at the same time, which historically deepens and extends drawdowns beyond the typical average

The data argues against selling on the headline. It does not argue for ignoring the one number that would actually change the picture: how long oil stays disrupted. Watch that, not the news cycle.