The Nasdaq just entered correction territory. Brent crude has been a roller coaster and the 10 year has surged higher. Bond traders have priced out every Fed rate cut for 2026 and are now handicapping a 40% chance of a hike because they fear the “S” word – Stagflation! So what should you do? Well as I have said all week, start buying!

Now I am not saying put down all your money today because the President pushed out the bombing of Iran’s powerplants out 10 days. What I am saying is that wars bring plenty of fear and uncertainty. On balance, we have had plenty of that over the past year through Tariffs, congressional battles and the battle with the press. The war is just another headline. But it is also a signal to look through the uncertainty and analyze the situation objectively.

So what does history say during military conflicts? Let’s share some research.

The Data on War and Markets

There’s a well-documented pattern in financial markets that most investors find counterintuitive: stocks tend to perform well during wartime. Not despite the conflict but in part because of the fear that surrounds it. Several studies point to this.

• A CFA Institute study covering wars since 1926 found that large-cap US stocks returned 11.4% annualized during wartime versus 10.0% during the full period — and did so with lower volatility (13.9% vs. 18.3%). War, paradoxically, has been good for equity returns.
• RBC Wealth Management’s analysis of 20 major post-WWII military events tells an even more specific story: Average peak-to-trough drawdown: -6.0%; Average time to bottom: 13 trading days; Average time to full recovery: 28 trading days; and Events that recovered within a month: 19 of 20

In 95% of post-WWII military conflicts, the stock market recovered its entire drawdown within about six weeks.

“Buy the Invasion” — War by War

The pattern shows up in virtually every major US conflict:

World War II

After Pearl Harbor, the S&P dropped 20.3% over four months. Anyone who bought at that April 1942 low captured an 87% rally to V-J Day. Total wartime return: +50%.

Korean War

The initial shock was -12.2% in two and a half weeks. Full recovery took 59 trading days. Total war-duration return: +20%. And the year after the war ended? The S&P rallied 44% — the strongest post-war year on record.

Gulf War (1990-91)

Iraq’s invasion of Kuwait triggered a -17.5% to -21% drawdown as oil spiked. But from the October 1990 trough to the war’s end, the S&P rallied 24%. The following year returned 30.5%.

Iraq War (2003)

This is the textbook “buy the invasion” case. Markets had already priced in three months of war anxiety with a -14.7% pre-war drawdown. The moment the invasion started and the uncertainty resolved, the reversal was violent: +26.7% in the first year, with the S&P bottoming just seven trading days after the first strike.

The pattern is clear: markets hate uncertainty more than they hate conflict. Once the shooting starts, the unknown becomes the known, and prices tend to recover.

Historical War Performance Summary

However, there is a “but”

There is exactly one event in the last 80 years where this pattern failed catastrophically: the 1973 OPEC oil embargo.

Oil prices tripled from $3 to $12 per barrel during that period and the S&P fell nearly 50%. Like the 2000 and 2008 crashes, it took a long time to get back to whole for investors – in the 1970s, it was six years to recover. That was not a typical period so to speak, though the Vietnam War would not “end” for a few more years. This was a structural economic shock that combined a supply-side energy crisis with Watergate, wage-price controls, and runaway inflation. As I mentioned earlier in the week, the Fed also did not do investors or the economy any favors by doing things that amplified the problems.

This is the event that every bear is pointing to right now. And they’re not wrong to consider it.

So Where Are We Today?

The Iran-US conflict and the effective disruption of Strait of Hormuz traffic has driven energy prices higher across the globe – Brent Crude has remained over $100 for the most part after peaking much higher over the past month. This is a meaningful shock but not as high as previous ones because societies have moved away from gasoline cars to more electric ones for one. However, it still hurts because the economy is weak.

The macro picture has shifted sharply in one week:

• Fed rate cut expectations have completely evaporated
• Import prices jumped 1.3% in February, well above forecasts
• The VIX is sitting at 25-27, firmly in “risk-off” territory
• Tech leadership has cracked — Meta dropped 7% in a day, Micron collapsed 22% in a week

So the question is – is this like most wars and their recoveries OR is it 1973?

If the Strait of Hormuz situation resolves diplomatically — as nearly every prior oil shock has — history argues that this uncertainty will pass and we will go back to focusing on the million other things going on in the US. If the disruption is structural and persistent — a prolonged closure, months of $100+ oil — then the 1973 playbook will come into play. Remember yesterday I said the DBA was climbing gradually, which argues for a persistent rise in goods inflation. The warnings are there.

So what do the CE models say?

v=This is where we shift from historian to a trader. The proprietary multi-model framework of CE that evaluates market conditions across dozens of quantitative signals — trend-following systems, risk regime classifiers, statistical pattern matching, and machine learning forecasts argue that this will pass.

Behind these forecasts are independent voting systems that look at regimes, historical analogs, and automated pattern matchers and they are all saying the same thing – conditions argue we should be going higher with the S&P 500. What is holding back is the one model that measures today’s valuation, credit spreads, and stress levels… headline risks.

The risk regime is flashing red.

Further arguing for stability is the current risk profile of the market. Market fragility is elevated and sentiment is deeply bearish. On balance, if one looks at the news between corporate earnings reports and just the general headlines, they are going in opposite directions. Corporations are generally bullish (as AI makes their margins higher) while the average headline is deeply negative. History argues conditions are bullish, but the current environment is hostile, and that’s precisely the environment that has historically preceded recoveries.

At the longer-term price structure level, the closest analogs are 2010, 1970, and 1960. Two of the three resolved with strong rallies. The outlier — 2010 — rallied first, then gave it back. A cautionary data point, not a disqualifying one. I think of these three, 2010 is probably on the table because this war with Iran is not going to end overnight – Iraq did not – and 2010, which resembles 2004 (the year after Iraq), saw summer selling before the rally continued into year end.

One chart that is bothering me a bit is the one below – ratio of the S&P to the Vix. This historically has been a nice model to watch as it correlates well to bull markets and argues that trouble is coming when it goes the other way.

As the chart shows, the S&P / VIX ratio (manipulated using some moving averages) is trending lower and broke through “support” as soon as the Iran war began. It has also moved past the October 2024 lows as well, which supports the case that while we may rally in the short term, we probably will need some time for this ratio to settle and volatility to drop.

Another chart I am watching is gasoline – yes I just said that the effect on the driver is less because of more electric vehicles but California right now is dealing with very high gasoline prices and they are one of the largest economies in the WORLD. If they slow, based on this since everyone drives out there, that will have a ripple effect.

I believe the threat on this chart still remains about 30% higher, which probably needs another 30% climb in crude prices. Or just demand? Will there be gas lines here in the US…I doubt it but if this war does drag on, 2010 becomes the 1970s all over again.

The last chart I am watching is the S&P 500 to Commodities. The chart below is that of the ratio during the 1970s and the commodity markets had the upper hand through 1980. The 1973 embargo dropped this ratio significantly.

If you look at today’s chart, we are at a similar peak and it has cascaded lower. And that is the threat.

In short, the 1973 scenario may be best viewed through this ratio. If commodities continue to gain the upper hand vs the S&P 500, perhaps it will be a long time before markets get back to the 7000 level in the S&P 500. If commodities retrace and volatility calms down, then 2010 is on the table.

Conclusion: Follow the Base Rate, Respect the Exception

History is not a crystal ball, but it is a scorecard. And the scorecard says this: in 19 of 20 post-WWII military conflicts, the stock market recovered within weeks. Wartime returns have actually exceeded peacetime returns with lower volatility. The “buy the invasion” pattern is not a myth — it is a statistically supported tendency backed by nearly a century of data.

The CE models I run every day are aligned with that history. They see the fear, the elevated volatility, and the bearish sentiment — and they interpret those conditions as the setup for recovery, not the beginning of something worse.

But I am not ignoring the charts that argue otherwise. The S&P/VIX ratio is breaking down. Commodities are gaining the upper hand against equities in a way that echoes the 1970s. Gasoline prices are climbing in ways that could slow the real economy. These are the warning signs that separate the 1990 Gulf War outcome from the 1973 embargo outcome.

My base case remains constructive. The weight of evidence — historical, quantitative, and systematic — leans toward recovery. But the position is sized for uncertainty, not conviction. I am buying, but I am buying carefully, with one eye on the models and the other on the commodity charts that will tell me if this is different.

The analysis above reflects proprietary model outputs and historical data as of March 26, 2026. It is not investment advice. Past performance — whether during wars or otherwise — does not guarantee future results.

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Shared content and posted charts are intended to be used for informational and educational purposes only. CMT Association does not offer, and this information shall not be understood or construed as, financial advice or investment recommendations. The information provided is not a substitute for advice from an investment professional. CMT Association does not accept liability for any financial loss or damage our audience may incur.

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