It may not make much sense that geopolitical risk has little equity market impact, but it should not surprise us. Historically, even actual outbreaks of war or recurrent terrorism have caused little in the way of deviations of market outcomes from their usual patterns--and when they have had an impact, those impacts have tended to be transient. This is an empirical regularity of outcomes in the wealthy West, definitely since nuclear deterrence and avoidance of direct great power wars have come into play.
But going back further into the nineteenth century, and wider into economies more exposed to credible if not existential threats, the impact of geopolitics on market outcomes has been limited as well. There have been some negative effects of national security uncertainty on long-term economic performance--as well as more importantly and far more awfully on human lives directly--even if not on stock prices or volatility. That says something about how stock prices and profits are determined by the lasting insulation of incumbent businesses and by political redistribution towards capital and particular sectors, more than it says anything about geopolitical risk being unimportant.
To put it much too bloodlessly, we have run a bunch of natural experiments on market reaction to changes in perceived security risk.
* The risk of nuclear war arguably went down a lot in the immediate aftermath of the Cold War ending in 1989, and then rose significantly as nuclear weapons technology proliferated to unstable or inimical regimes more recently. Average national savings rates moved little in response to these stark changes in threat, as opposed to the large changes that business cycles and the financial crisis had.
* Large withdrawals of U.S. and Soviet troops from locations around the world, notably Germany, Eastern Europe, and the Philippines, seemed to matter little for economic outcomes on their own in terms of geopolitical risk (though of course their withdrawal allowed the marketization of Eastern Europe).
* The 9/11 attacks on the United States led to costly and widespread imposition of new standards of homeland security, including at the borders with Canada and Mexico, and imposing transactions costs and time burdens on travelers and shippers. According to most polls, Americans felt less rather than more safe, and if anything overestimated the risk of terrorism. Neither of these facts led to any deterrence of the great...