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WALL STREET'S RECOVERY TRACKS GAINS AT START OF PREVIOUS US WARS

After Wall Street opened with losses amid uncertainty around the U.S. and Israeli air war on Iran, the major benchmarks have recovered, with the S&P 500 .SPX and Nasdaq .IXIC even turning positive for the session.

While it might seem reasonable for stocks to fall at the start of war, history shows that is not necessarily what happens.

Monday's modest recovery came even as the conflict expanded with no end in sight, with Israel attacking Lebanon in response to strikes by Hezbollah, and Tehran firing missiles and drones at Gulf states and a British air base as far away as Cyprus. That came after a weekend of bombing that killed Iran's supreme leader.

The S&P 500 is now up 0.1%, with the Nasdaq up 0.5%, thanks in part to a continued rebound in Nvidia NVDA.O and other AI-related stocks. Surging oil prices and a rally in defense stocks are also helping.

Global investors watched for weeks as the U.S. sent warships to the Middle East, so the weekend's attack was not a complete surprise, likely contributing to the U.S. stock market's benign overall reaction on Monday.

Two decades ago, the U.S. invasions of Iraq and Afghanistan were also heavily telegraphed ahead of time, helping reduce uncertainty and keep a lid on the stress felt by of global investors.

The S&P 500 rallied over 7% during the week in March 2003 when the United States launched a full-scale invasion of Iraq.

And the benchmark also rose nearly 5% in two combined trading weeks before and after the U.S. invasion of Afghanistan in October 2001.

Still, investors have plenty of reason to worry. An ongoing disruption of shipping in the crucial Strait of Hormuz could lead to a sustained rise in oil and natural gas prices, which would endanger a global economic recovery and fuel global inflation.

Energy makes up less than 10% of most countries' CPI baskets, but when major shocks occur, energy can account for up to half of headline inflation, according to Swissquote market strategist Ipek Ozkardeskaya.

(Noel Randewich)

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EARLIER ON LIVE MARKETS:

ENERGY, DEFENSE UP SHARPLY, BUT OFF DAY'S HIGHS; STRATEGISTS WEIGH NEAR-TERM OUTLOOK CLICK HERE

WITH GROWTH STOCKS COMING UP LAME INVESTORS PLAY DEFENSE CLICK HERE

FEBRUARY FACTORY ACTIVITY: WILL THE REAL PMI PLEASE STAND UP? CLICK HERE

FEAR OF MIDDLE EAST WAR CONTAGION MAKES INVESTORS RISK-SHY CLICK HERE

US STOCK FUTURES SLIDE AMID MIDDLE EAST CONFLICT CLICK HERE

THREE VARIABLES ALLIANZ GI IS WATCHING AMID MIDDLE EAST CONFLICT CLICK HERE

MIDDLE EAST CONFLICT: WHAT IT MEANS FOR THE BOE, ECB CLICK HERE

HOLD YOUR NERVES - BARCLAYS CLICK HERE

STOXX SHUDDERS AS IRAN CONFLICT LIFTS OIL, SINKS TRAVEL CLICK HERE

BEFORE THE BELL: EUROPE'S FUTURES DOWN SHARPLY; DEFENCE, AIRLINES, OIL STOCKS ON THE RADAR CLICK HERE

DIRE STRAITS FOR GLOBAL OIL TRADE CLICK HERE

(Terence Gabriel is a Reuters market analyst. The views expressed are his own)