When the Cold War ended with the Soviet Union’s dissolution in 1991, many observers predicted a new era of international cooperation. Humanity would enjoy a “peace dividend” as military budgets got repurposed for civilian purposes.

Yeah. Sure. Right. The Israel/Hamas war is yet another in a long list of grim reminders that such thoughts were pipe dreams.

Case in point: Before the opening bell Tuesday, Lockheed Martin (NYSE: LMT) reported third-quarter operating results that beat on the top and bottom lines. The U.S.-based aerospace/defense behemoth, the largest defense contractor in the world, also reported a massive global backlog of orders. Swords aren’t getting turned into ploughshares, just yet.

However, if you’re concerned how the outbreak of violence in the Middle East will affect your portfolio, keep this in mind: Geopolitical shocks to markets typically prove temporary…and financial life goes on.

One of the immediate consequences of the death and destruction in Gaza has been a surge in crude oil prices, due to fears that the mayhem will spread throughout the broader Gulf region and disrupt supplies. We’ve also seen a jump in the price of gold, which typically happens during crises.

However, we still haven’t suffered a steep decline in the stock or bond markets. Indeed, the main U.S. stock market indices shook off geopolitical fears Monday and closed sharply higher.

On Tuesday, interest rate fears crept back into market sentiment and the indices closed mixed as follows:

• DJIA: +0.04%
• S&P 500: -0.01%
• NASDAQ: -0.25%
• Russell 2000: +1.09%

Treasury yields shot higher, with the 10-year benchmark surpassing 4.83%, as the Commerce Department on Tuesday released a U.S. retail sales report for September that blew past expectations.

Retail sales rose 0.7% on the month, far above the 0.3% consensus estimate. Excluding autos, sales were up 0.6%, also well ahead of the forecast for 0.2%. On a year-over-basis, retail sales rose 3.8%.

Robust consumer spending has analysts worried that inflation will reignite and prompt a hawkish response from the Federal Reserve.

WATCH THIS VIDEO: Navigating Treacherous Financial Waters

Consumers usually aren’t daunted by overseas war, at least not for long. My analysis of 10 salient historical episodes of military conflicts that preceded the Israel/Hamas war shows that the deleterious effects on returns usually prove transient, with equities higher in most cases six months and one year later (see table):

The stock market typically regains its footing after the initial shock of a geopolitical crisis wears off, particularly when (as is the case now) the economy and corporate earnings are on solid ground.

The Atlanta Fed currently projects that U.S. gross domestic product (GDP) growth will reach a robust 5.1% in Q3, up from its previous forecast of 4.9%.

For third-quarter 2023 earnings season, the S&P 500 is reporting blended year-over-year earnings growth of 0.4%, according to FactSet. If that level of growth holds firm, it would mark the first quarter of year-over-year earnings growth reported by the index since Q3 2022. Analysts are confident that when final earnings numbers as a whole are posted, the growth rate will actually exceed 0.4%.

The war in Gaza is horrendously bloody. But consider this: During World War II, the most destructive and genocidal cataclysm in human history, financial markets actually held their own. From the outbreak of WWII in September 1939 until hostilities ended in August 1945, the Dow Jones Industrial Average was up a total of 50%, more than 7% per year.

Not surprisingly, defense stocks such as Lockheed Martin invariably get an immediate boost from the outbreak of a major war. As the Israel/Hamas crisis heats up, the stocks of military contractors have gotten a boost.

This upward momentum in the defense sector should continue not just over the near term but well into next year. The Russia-Ukraine war is another catalyst for defense industry profits. As global military budgets soar, every portfolio should have exposure to the defense sector.

Don’t get me wrong: War is a terrible phenomenon that wreaks misery and suffering. My intention here isn’t to minimize war’s human toll, but merely to put it into financial context. The stock market right now is looking past geopolitical worries. You should, too.

Editor’s Note: Amid the volatile investment climate I’ve just described, are you looking for market-thumping gains…but with mitigated risk? Consider the advice of my colleague Jim Pearce, chief investment strategist of Personal Finance.

For example, if you had taken the initial recommendation of Personal Finance to buy Chevron (NYSE: CVX), and held on, you’d be sitting on a whopping return of nearly 3,200% (that’s not a typo).

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John Persinos is the editorial director of Investing Daily.

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