How much did the US stock market fall after the Pearl Harbor attack? Should you switch to cash for safety after a war? | Investment fund companionship

（Source: Invesco Great Wall Fund）

Recent developments in the Middle East situation, as well as traffic conditions through the Strait of Hormuz, have become a Sword of Damocles hanging over investors’ heads. The situation is tight one moment and tense the next; oil prices have been swinging wildly; and the stock market has been in a persistent downtrend. Especially on the 23rd, global markets saw a panic-driven selloff, and the SSE Composite Index also temporarily fell below 3,800 points. Even “safe-haven assets” like gold saw sustained sharp declines.

Investors can’t help worrying: will things keep getting worse? Is it only by holding cash that you can get through it?

The situation changes in the blink of an eye, and Trump is hard to pin down. We can only look to history and see what happened to markets after wars in the past.

I

War does bring short-term shocks,

but the impact may not be as terrifying as people imagine

The founder of modern growth stock investing strategy, Philip Fisher, once reviewed and concluded: throughout the 20th century, whenever large-scale wars broke out anywhere in the world, or whenever U.S. forces got involved in any fighting, the U.S. stock market was always hit hard in response. In addition, in the past 22 years, at least ten times international crises had the potential to evolve into large-scale wars. But in every case, stock prices first fell sharply under war-related worries, and after the worries about war faded, they rose even higher.

Is it really like that? Let’s look at the performance of the U.S. market after those famous wars.

The Pearl Harbor attack

Since the 20th century, the most severe full-scale war was World War II. In the few years before WWII, the United States had not entered the war. It wasn’t until December 7, 1941, when Japan attacked Pearl Harbor, and the U.S. Pacific Fleet was nearly wiped out. The next day, the U.S. declared war on Japan, and the Dow Jones Index fell 2.92% that day. The decline continued until April 28 of the following year, when the drop reached 19.83%. With the battle situation gradually turning, after October the Dow recouped its losses from the Pearl Harbor incident and entered a sustained rally lasting 11 months.

That is to say, even under the most severe world war, after the U.S. entered the war, it fell by less than 20%. This magnitude is roughly equivalent to the tariff-driven drop from February to April last year.

Of course, we may worry that this time is different. Because this concerns the Strait of Hormuz, the world’s key oil artery. Our market worries include the possibility that a surge in oil prices could trigger cascading reactions in supply chains, as well as concerns across multiple aspects such as stagflation and rate hikes.

So let’s shift our focus back to the Middle East—the key region for global oil supply.

The Gulf War

In the 1990 Gulf War, on August 2, Iraq invaded and announced the annexation of Kuwait. Because of concerns about an oil crisis, over the next 50 trading days the S&P 500 fell 16.89%. But after October, the market began to rebound. On January 1991, the first missile from Operation “Desert Storm” landed; uncertainty disappeared. The market rebounded directly by 3.7% that day, and by early February the S&P 500 had regained its losses.

The Russia-Ukraine war

Bringing the timeline closer: in early 2022, the Russia-Ukraine conflict escalated into a full-blown confrontation. Combined with the Fed’s rate hikes, the S&P 500 also saw a 20% pullback from February to September. After 10 months of rebound, the S&P 500 recovered its losses from 2022. Since then, U.S. stocks have entered a three-year uptrend. (Data source: Wind)

II

Buffett, Fisher:

Selling stocks out of fear after a war happens is wrong

So since the stock market will inevitably be hit by war in the short term, should investors liquidate their holdings when the war breaks out? Or should they sell equity assets to buy gold or cash as a safe haven?

The “God of Stocks” Warren Buffett once said: when a war happens, people often sell assets out of fear, but that is usually the wrong decision. Over time, the value of the business will keep growing, while the purchasing power of money typically declines. In the long run, investing in the U.S. stock market is always a better choice than holding cash or gold.

In fact, we see that after the outbreak of the Iran conflict, gold experienced an extremely large adjustment; this month’s biggest drawdown has already exceeded 24%. During the 2022 Russia-Ukraine conflict, after a brief rise, gold also went through a sustained pullback of 7 months.

In his book “How to Select Growth Stocks,” Fisher also discussed in detail how to respond to war. The core is “don’t worry and don’t let the shadow of war deter you from buying stocks.”

The fundamental reason is that wars always lead governments to increase spending, the money supply to surge, resulting in inflation; cash then loses value. Therefore, Fisher believes that selling stocks because war breaks out and switching into cash is “not understanding the principles of investment and financial management.”

On the contrary, if investors were already planning to buy a stock, but then the war cloud suddenly falls and the stock price plunges, then they should discard fear, move forward boldly, and start buying. If what they face is only a threat from war, they should buy in a smaller size; and if the war begins, then they should accelerate their buying pace significantly.

Of course, there is a premise to what Fisher said: the war occurs outside the home country, and “the wars the United States participates in were not fought and lost.”

III

Outlook: How should the current A-share market be viewed?

Finally, let’s also look at market concerns about this Middle East situation.

At the beginning, the market’s reaction was relatively mild, and expectations were that the fighting would end quickly. However, as developments kept fluctuating, pessimistic sentiment spread as the fighting dragged on. With oil prices rising, the market started to price in the risk that the U.S. would not cut rates and might even hike. As a result, the market began to show a liquidity crisis pattern. Spot gold yesterday intraday broke below the 4,100 U.S. dollars per ounce level, erasing all gains since early 2026. In addition, global stock markets also saw panic selloffs. After a series of continuous declines, the A-share market began to face pressure on liquidity, forming a negative feedback loop of capital outflows and market declines.

However, after Trump announced late on the 23rd that he had instructed the postponement of all strike actions against Iran, Brent crude futures prices immediately fell below the 100 U.S. dollar level. On March 24, the market rebounded sharply, with more than 5,100 stocks rising. On the 25th, the market rebounded strongly again.

In the short term, the Middle East situation is still disrupting all of us. Markets have gradually begun pricing the risk that oil prices will remain high during the second half of this year, and they have also started worrying that the Fed may stop cutting rates and even hike. This risk of rising oil prices not only harms risk appetite; if high oil prices persist for a long time, it will also damage demand in China and globally. Until the risk of conflict in the Middle East is lifted, the A-share market’s risk appetite may remain cautious.

That said, the A-share market’s rapid drop in the short term has already released a significant portion of the risks in advance. The dividend yield of the CSI 300 has risen to 2.8%. Compared with the attractiveness of the yield on 10-year government bonds, the downside risk may be more relatively controllable. In the medium term, geographic conflicts have a relatively large impact on international order and the overall landscape. If the United States becomes deeply trapped in the geopolitical conflict quagmire, it may lead to rapid accumulation of U.S. public debt, a drop in market confidence, and the selling of U.S. Treasuries—raising concerns about U.S. fiscal credit and increasing long-term downward pressure on the dollar through credibility cracks. This is relatively favorable for the Chinese market.

Moreover, the medium-term logic in the market has not changed. The underlying logic behind this round of repricing of China’s assets is, on the one hand, the reconstruction of international order and the shaking of dollar hegemony, and this geopolitical conflict is likely to reinforce the logic of weakening dollar credit. On the other hand, the trend in the AI industry brings progress in productivity, driving growth in more industries, and China has achieved innovation breakthroughs in many areas. In other words, as the situation gradually stabilizes, the market will ultimately return to its own underlying logic.

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