What geopolitical conflict actually does to markets

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The Quantum Letter is published by Quantum Capital, a registered trade name of Patriot Advisory Group LLC, a registered investment adviser registered with the State of New Hampshire. This content is for informational and educational purposes only and is not intended for use as investment advice or a recommendation to buy or sell any security or digital asset. Investing involves risk, including the possible loss of principal. Digital assets are speculative and subject to significant volatility and regulatory uncertainty. The views expressed are those of the authors as of the date of publication and are subject to change. Please read the full disclosures at the bottom of this letter.

With conflict escalating in the Middle East, we found ourselves returning to a question we think is worth answering rigorously: across history, what has geopolitical conflict actually done to equity markets? And more importantly, what conditions have determined whether those moments became lasting damage or short-lived volatility?

We went back through 40 years of data, mapped every major conflict to the monetary environment surrounding it, and ran the numbers. What we found is something we think every serious investor should understand, especially right now.

The short version: the conflict itself is rarely the variable that matters most.

The variable that actually drives outcomes

40 years of market data show, consistently, that the dominant driver of equity returns in the 12 months following a conflict outbreak is the monetary policy environment surrounding it. Specifically, what the Federal Reserve is doing at the moment of onset.

The fear, the headlines, and the worst-case scenarios create volatility. The Fed creates the conditions that determine whether that volatility becomes a bear market or a buying opportunity. Once we understood this, the data became a much more useful tool than the news cycle.

The framework identifies three monetary environments, each producing meaningfully different outcomes.

Fed tightening: The central bank is actively raising rates, compressing valuations and tightening financial conditions simultaneously with the conflict shock. This combination produced the most painful outcomes in the dataset. The 2022 Russia-Ukraine period is the clearest recent example.

Fed easing under duress: The Fed is cutting because something has already broken, typically a recession or financial crisis. The easing is a distress signal, and the conflict lands on top of a primary problem that already exists. 2001 fits this pattern.

Fed neutral: The central bank is on hold, patient, and data-dependent, adding no additional friction and signaling no emergency. This is the cleanest environment in the dataset. And this is where the findings become hard to ignore.

The data: every major conflict during a Fed-neutral period (1986–2025)

The table below represents every qualifying conflict episode since 1985 where the Federal Reserve was genuinely on hold at the time of the outbreak. Conflicts during active tightening or emergency easing cycles are excluded because the monetary condition, not the conflict, is doing the primary work in those cases.

In every instance where the Fed was neutral and a major conflict began, the S&P 500 was higher twelve months later. Every time. With an average return of +13.5%.

The broader picture: all 23 post-WWII conflicts

Zooming out to the full dataset of every major conflict since World War II, the picture remains consistent.

The market drops less than 5% on average at conflict onset and recovers within a month. Investors who sold at the trough and waited for clarity locked in the loss and bought back higher.

Where today fits in the framework

As of April 2026, the Federal Reserve has been on hold since late 2024. The FOMC has held rates steady across multiple meetings with a stated posture that is patient and data-dependent. This places the current environment in the Fed-neutral category, the same backdrop present in every positive outcome in our filtered dataset.

We are transparent about the limits of our visibility here. The military outcome, the duration, the escalation scenarios are unknowable for us and for the institutions managing hundreds of billions of dollars. Our investment thesis is built on understanding the dominant driver of equity returns, which history consistently identifies as monetary liquidity.

If a company was a great business on February 28th, it is still a great business today. The difference is that 10 days into the conflict, it may be significantly on sale. Institutions know that. They are deciding how much to buy.

Why institutions move fast and why it matters

When a conflict breaks out and the Fed is on hold, institutions apply straightforward math. Either the conflict ends relatively quickly, in which case equities rebound as uncertainty lifts. Or it drags on, in which case the Fed eases to support growth, providing the liquidity backdrop that drives equity prices higher. In both scenarios, the long-term trajectory of quality assets points the same direction.

This is why the 10-day window matters. By day 10, the initial panic selling has run its course. Institutions with long time horizons step in. Across 22 qualifying conflicts since QQQ's 1999 inception, average 12-month returns for those who entered at that window exceeded 11%.

Our standing principles in volatile markets

Across every comparable environment in the last 40 years — a major conflict with the Fed on hold — the data points in a strong direction direction. The evidence strongly favors patience.

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