Welcome to my video presentation for Wednesday, February 23. For a condensed transcript, read the article below.

When the Soviet Union collapsed in 1991 and the Cold War came to an end, many geopolitical thinkers optimistically expected the world’s nations to beat their swords into ploughshares. That didn’t happen.

Military budgets around the world are gigantic and only getting bigger. The U.S. spends far more on defense than any other nation on earth. This largesse, which mostly ends up in the coffers of U.S.-based contractors, will gain even more momentum from the saber-rattling of Russian President Vladimir Putin. I’ll get to the aerospace/defense sector in a minute. First, let’s look at how geopolitical crisis is driving markets.

The Russian invasion of eastern Ukraine is currently roiling markets and sending stocks deeply into the red. The main U.S. stock market indices sharply fell on Tuesday, although they were bouncing back in early trading Wednesday. We’ll continue to see roller-coaster action into the foreseeable future.

To be sure, military conflict and defense spending account for a large portion of the global economy. However, outbreaks of “hot wars” typically don’t exert a sustained effect on stock markets or economic growth. Markets have mostly ignored recent conflicts in the Middle East and Asia. It would be a mistake to sell stocks into recent weakness caused by the Ukraine crisis.

The pattern throughout the 20th century and up until the present day shows that after an initial slump in stocks due to the shock of war, stocks rebound fairly quickly, regardless of the region or the scale of the conflict.

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.

Read This Story: From Russia, Without Love

The revanchist efforts of Vladimir Putin in Ukraine are an attempt to undo much of Europe’s post-Soviet configuration. For Putin, the demise of the U.S.S.R. was a tragedy.

The Ukraine crisis will continue to unsettle markets, especially energy prices because of Russian’s outsized influence in oil and gas production (see chart).

Western sanctions, led by the United States, will generate uncertainty and lift energy prices as Russian production is hampered.

The stocks that get an immediate boost from war are, not surprisingly, aerospace/defense contractors. As the Ukrainian crisis heats up, the stocks of military contractors have gotten a boost. This upward momentum should continue not just over the near term but well into the year, as investors also turn to aerospace/defense stocks as inflation hedges.

When the shock fades…

Pick a crisis: the Saudi Aramco drone strike of 2019; the North Korean missile crisis of 2017; the U.S. terrorist attacks of 2001; Iraq’s invasion of Kuwait in 1990; the Yom Kippur War of 1973; the Tet offensive of 1968; the Cuban missile crisis of 1962…the list goes on and on. Stocks initially sold-off and then bounced back (see my video for further details and charts).

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.

Spooked by the Russia-Ukraine crisis? Putin’s invasion of eastern Ukraine is sowing investor fear. But history shows that the shock eventually fades, and business returns to normal. Much of that business is preparing for war in the first place. To quote the Talking Heads: “Same as it ever was.”

Stay calm and take measured steps. I suggest you increase your exposure to aerospace/defense stocks. Another classic hedge against crisis and inflation is gold.

Although they’ve spiked recently due to the news from Ukraine, gold prices have been surprisingly flat this year, which tells me they’re poised to pop in coming months amid accelerating inflation and uncertainty over Putin’s intentions.

Our team has pinpointed a small-cap gold mining stock that’s on the cusp of exponential gains. For details on this under-the-radar gold play, click here.

John Persinos is editorial director of Investing Daily.

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