What Does a New Forever War Mean for Stocks?

The ceasefire didn’t hold.

Iran attacked commercial ships in the Strait of Hormuz.

The U.S. responded with fresh strikes on nearly 90 targets. Iran hit a Patriot battery in Kuwait, an early-warning system in Qatar, and a U.S.-linked air base in Jordan.

This isn’t a flare-up anymore. It’s a rolling, low-grade war that opens and closes and opens again — with no end in sight.

So the question isn’t “When does this end?”

It’s “What do you do with your money while it doesn’t?”

History Has an Answer — but It’s Messy

Let’s go back to the two longest wars in modern American history: Afghanistan and Iraq.

Afghanistan started October 7, 2001. In the three months before the invasion, the S&P 500 fell 11.4%. In the three months after, it gained 10.4%.

But look at the full first year and the picture flips. The S&P actually dropped roughly 25% in that stretch.

Why the contradiction? Because the dot-com crash was still grinding the market lower underneath the war. The war wasn’t affecting stocks so much as the bear market was.

Iraq tells a cleaner story.

In the run-up to the March 2003 invasion, the S&P fell about 12% as investors priced in the uncertainty of whether war would even happen.

But once the invasion actually started, the S&P rallied 26.7% over the next 12 months.

That’s the pattern worth remembering: Markets hate an open question more than they hate a war.

The invasion resolved the question and the market rallied on that resolution.

Now stretch both wars out to their full length — Afghanistan ran 20 years, and Iraq ran eight.

Full-length returns for both were positive.

But that stat is almost useless on its own, because the 2008 financial crisis sits right in the middle of both timelines. So does the dot-com bust. So do multiple Fed tightening cycles.

So here’s the real lesson: Across 20 major U.S. military conflicts since World War II, the S&P fell an average of 6% from shock to trough — and took just 28 days, on average, to fully recover.

That held true whether the conflict lasted three months or three decades.

In sum: Duration doesn’t move markets; shock does.

A forever war becomes wallpaper.

It stops being the story the market trades on within weeks of the initial shock. Then rates, jobs, and earnings take the wheel again — right up until the next escalation resets the clock.

It’s sudden drops followed by slow but significant rebounds. It’s a sawtooth pattern layered on top of whatever the broader economy is already doing.

Who Actually Wins?

Two sectors show up consistently across every major U.S. conflict since WWII…

Energy and defense typically win out, while consumer discretionary and airlines consistently lose.

Energy is the simplest logic in the piece.

Iran sits on top of the Strait of Hormuz, the choke point that roughly a fifth of the world’s oil and LNG passes through.

Every time Iran threatens or attacks shipping there, oil and gas prices carry a risk premium, and energy companies — from majors to shippers to refiners — collect it.

However, defense is more nuanced — especially right now.

The Primes: Battered Now, Built for the Long Haul

Lockheed Martin (NYSE: LMT), RTX (NYSE: RTX), Northrop Grumman (NYSE: NOC), and General Dynamics (NYSE: GD) all sit on enormous backlogs that only grow as this war drags on.

RTX makes the Patriot interceptors and Tomahawk missiles being actively fired and actively destroyed right now.

In the first month of this war alone, the U.S. burned through roughly 10% of its entire Tomahawk stockpile. RTX normally produces about 500 a year. It’s been ordered to double that.

Lockheed builds the THAAD and PAC-3 interceptors intercepting Iranian missiles over Kuwait and Jordan as we speak, plus the F-35s flying combat sorties in the region.

And yet Lockheed Martin is down roughly 24% since this conflict started February 28, while the S&P 500 is up about 8% over the same stretch.

So what gives?

Well first, these stocks aren’t trading on the war — they’re trading on the odds of peace.

Every time a ceasefire or peace-talk headline breaks, defense names get hammered, down 4%–5% in a single session. This is because the market had priced in sustained or escalating demand, and de-escalation removes that premium overnight.

Secondly, some earnings reports disappointed for reasons that have nothing to do with Iran.

For example, Lockheed’s Q1 revenue was flat, and earnings per share fell to $6.44 from $7.28 a year ago, driven by supply-chain cost overruns on fixed-price contracts.

And thirdly, battlefield usage doesn’t convert to revenue on any fast timeline.

Firing 10% of your Tomahawk stockpile in a month is bullish for the multi-year backlog — but it does nothing for next quarter’s income statement.

The real payoff shows up in backlog that takes years to convert to revenue.

None of that breaks the long-term case for the primes. It just means their stock prices move on quarterly execution and peace-odds headlines, not on the war’s mere existence, and that’s a very different rhythm than the one most investors assume.

The Next-Generation Names: A Different Animal Entirely

Aside from the “Big Five,” we’ve got a new breed of defense tech companies that are more directly linked to emergent 21st-century warfighting.

These are the sensor fusion, edge-AI targeting, drone, and counter-drone contractors building a whole new layer of technology underneath the primes.

These names trade nothing like traditional defense stocks. Many of them sit on the Nasdaq, not next to the industrials. And they carry growth-stock multiples, growth-stock volatility, and growth-stock investor bases.

That means they respond to a completely different set of forces than Lockheed or RTX do.

Where the primes move on peace-odds headlines and quarterly backlog conversion, these next-gen names move more like the rest of tech — on rate expectations, risk appetite, and the broader macro mood toward growth and innovation stories.

So a Fed rate adjustment does more for these stocks in a single session than most Iran headlines do.

Both categories offer real long-term value, but they move in different patterns for different reasons.

The Bottom Line

Forever wars don’t move markets in a straight line, and they don’t move markets forever.

They move markets in the first violent weeks, then fade into background noise while the broader economy takes back the wheel — until the next flare-up jolts everyone’s attention back.

That means the money isn’t made by predicting the next headline.

It’s made by understanding which sectors structurally benefit from a permanently unstable world, buying the shakeouts instead of chasing the spikes, and knowing that the primes and the next-gen names are two different trades wearing the same “defense” label.

Nevertheless, Iran just proved this is a permanent feature of the landscape, not a passing storm. And that makes both types of defense stocks long-term buys.