Sign up for our daily briefing

Make your busy days simpler with Axios AM/PM. Catch up on what's new and why it matters in just 5 minutes.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Catch up on coronavirus stories and special reports, curated by Mike Allen everyday

Catch up on coronavirus stories and special reports, curated by Mike Allen everyday

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Denver news in your inbox

Catch up on the most important stories affecting your hometown with Axios Denver

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Des Moines news in your inbox

Catch up on the most important stories affecting your hometown with Axios Des Moines

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Minneapolis-St. Paul news in your inbox

Catch up on the most important stories affecting your hometown with Axios Twin Cities

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Tampa Bay news in your inbox

Catch up on the most important stories affecting your hometown with Axios Tampa Bay

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Charlotte news in your inbox

Catch up on the most important stories affecting your hometown with Axios Charlotte

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Illustration: Aïda Amer/Axios

War. What is it good for? The stock market, it turns out.

The big picture: Don't pay too much attention to short-term stock-market gyrations. When you take a step back, it looks like war tends to be good — not bad — for American stocks.

Driving the news: U.S. stocks sold off when faced with the specter of possible war with Iran. War kills hundreds of thousands of people every year, which is good for no one. Stocks understandably fell after Iraq invaded Kuwait in 1990, or when terrorists attacked the U.S. on September 11, 2001.

By the numbers:

  • The Dow rose 43% during World War I, despite the destruction of much of Europe, and it rose 50% during World War II, which was bloodier still.
  • Defense spending has accounted for more than 3% of U.S. economic activity in every year since World War II. Think of it as a consistent and predictable fiscal stimulus.
  • The 2020 defense budget stands at $738 billion, or about 3.6% of GDP. That's roughly the same as the entire economy of Switzerland, or the $787 billion spent on the 2009 American Recovery and Reinvestment Act, aka the Obama economic stimulus bill.

Determining the effect of war on the stock market isn't easy, since the U.S. is almost always at war. Since the end of World War II, per Eurasia Group, the U.S. has been at war in every year bar 1949 and 1985.

  • But if you look at the wars that involved the most U.S. troops — the Korean War and Vietnam — the stock market rose 60% and 43%, respectively.
  • When the U.S. invaded Iraq in 2003, stocks rose 32% in the subsequent 10 months.

It's not just share prices, either. Mark Armbruster, president of Armbruster Capital Management, ran the numbers for the 1926-2013 time period and determined not only that large-cap and small-cap stocks outperform during wartime, but that they do so with lower volatility.

  • In other words: Risk goes down while returns go up.

How it works: If Iran were to bring down the internet in North America, or set off a nuclear device in Manhattan, there would certainly be immediate and significant negative repercussions for stocks. But it's hard to price in tail risks.

  • The base-case expectation with respect to any upcoming conflict with Iran is the same as with all other wars since 1945: That the war will not take place on U.S. soil.

The bottom line: Iran is not a significant part of global trade. The only way that U.S. companies can make money from Iran is by selling material for use in a war there. The bigger any war, the more money they can make.

Editor's note: This story has been updated to add context about the toll of war.

Go deeper

DOJ watchdog to probe whether officials sought to alter election results

Former President Donald Trump and former First Lady Melania Trump exit Air Force One in West Palm Beach, Florida, on Jan. 20. Photo: Alex Edelman/AFP via Getty Images

The Justice Department's inspector general will investigate whether any current or former DOJ officials "engaged in improper attempt to have DOJ seek to alter the outcome" of the 2020 election, the agency announced Monday.

Driving the news: The investigation comes in the wake of a New York Times report that alleged that Jeffrey Clark, the head of DOJ's civil division, had plotted with President Trump to oust acting Attorney General Jeffery Rosen in a scheme to overturn the election results in Georgia.

45 mins ago - Podcasts

Google's chief health officer Karen DeSalvo on vaccinating America

Google on Monday became the latest Big Tech company to get involved with COVID-19 vaccinations. Not just by doing things like incorporating vaccination sites into its maps, but by helping to turn some of its offices and parking lots into vaccination sites.

Axios Re:Cap goes deeper into what Google is doing, and why now, with Dr. Karen DeSalvo, Google's chief health officer who previously worked at HHS and as health commissioner for New Orleans.

Biden signs order overturning Trump's transgender military ban

Photo: Tom Brenner/Getty Images

President Biden signed an executive order on Monday overturning the Trump administration's ban on transgender Americans serving in the military.

Why it matters: The ban, which allowed the military to bar openly transgender recruits and discharge people for not living as their sex assigned at birth, affected up to 15,000 service members, according to tallies from the National Center for Transgender Equality and Transgender American Veterans Association.

You’ve caught up. Now what?

Sign up for Mike Allen’s daily Axios AM and PM newsletters to get smarter, faster on the news that matters.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!