While history suggests that stocks should move sharply higher after the war with Iraq has ended, some experts say things could be very different this time around.

Even if this war is brought to an end soon -- and that has become more questionable recently -- analysts say the U.S. government still will be responsible for rebuilding Iraq, which could prove costly. Meanwhile, investors will remain concerned about potential terrorist attacks. And unlike previous wars of the 20th century, this one comes after one of the biggest stock market bubbles in history, which could take years to unwind.

"This

war is just masking problems that are still waiting to be dealt with," said Charles Geisst, a stock market historian at Manhattan College in New York. "There's a whole generation of investors who've been discouraged, and that's not going to go away any time soon."

Postwar returns for the stock market generally have been positive over the last 105 years, with the

Dow

posting an average gain of 27% in the year after a war had ended, a gain of 8.4% after three years and a rise of 5.6% after five years, according to a study by Salomon Smith Barney's Consulting Group. The study looked at the Dow's annualized returns following the Spanish American War, World War I, World War II, the Korean War, the Vietnam War and the first Gulf War.

"A look at past conflicts suggests most wars have not severely damaged the U.S. stock market," said Bill Montague of the Consulting Group. "While fear or uncertainty have triggered declines immediately before or after the outbreak of some wars, those losses typically have been recouped once it became clear the United States would prevail."

In fact, the Dow posted double-digit returns in the year after each war had ended, with the exception of the Vietnam War, when it fell 14%. The

S&P 500

also reflects this trend, climbing an average of 11.4% in the year after a war had ended, rising 12.2% after three years and 10.6% after five years, according to the study, which examined S&P data going back to 1926.

From these numbers, it would seem the odds are in favor of a robust recovery after the completion of the latest Gulf War. But many experts believe that is unlikely to happen, and they say investors shouldn't compare this war with previous wars, which took place during different economic times.

"The biggest problem is that P/Es are still so high," said Gary Quinlivan, business and economics professor at Saint Vincent College in Pennsylvania. "The present P/E ratio for the S&P 500 index is twice that of the 1991 Gulf War, and we have a weaker horizon in terms of potential profits. The airline industry is collapsing, and automobiles, like Ford and GM, are in rough shape."

While Quinlivan doesn't expect double-digit returns in the year after the Iraq War, he doesn't expect the market to repeat its performance after Vietnam either. "Back then, oil prices quadrupled and inflation took off," he said. "Today we have low interest rates and low inflation."

The Dow shed 14% one year after the Vietnam War had ended and was down 1.5% after three years. After five years, the Dow was down 5.3%. Still, the Vietnam War lasted for years and was ultimately unsuccessful. That isn't likely to be the case with the latest Iraq War.

Seth Scholar, senior research analyst at Sand Hill Advisors, said he is expecting a "slow ramp up" after the war has ended, not a "bolt out of the gate."

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Although firms are "leaner and meaner" today and monetary stimulus should help, he said, investors will remain nervous about the geopolitical situation, and he believes the market will continue to struggle with overcapacity, high valuations and corporate-governance issues. Indeed, if it weren't for the obsession with war, investors may have paid more attention to recent developments at

HealthSouth

(HLSH.PK)

-- whose chief financial officer recently pleaded guilty to fraud -- or at

Network Associates

(NETA)

, which said the Justice Department is now investigating its accounting practices.

"There are so many elements that are unique to this period of time that it's really hard to say the market is going to act like it has in the past," Scholar said.

Kenneth Kim, assistant professor of finance and managerial economics at the University of Buffalo and co-author of

Infectious Greed: Restoring Confidence in America's Companies

, is expecting "some exuberance" once the war is over, but said that will prove temporary because war hasn't been the only factor hampering stock prices over the past three years.

"To say that just because we had stock price increases following the Korean War and so forth and to think that that might happen this time round is being a bit optimistic," he said. "What's different this time is that we had a corporate crisis prior to this war, so stocks were down independent of any war effect."

Other experts say a postwar rally could be limited by concerns about a faltering housing market or ballooning deficits, which could prompt the government to issue more debt and send bond yields higher.

Still, Kevin Gaughan, a portfolio manager at Strong Capital Management, is more optimistic, saying that the economy is fundamentally sound and that this ultimately will drive share prices higher. He likens today's environment to the early 1960s, when investors were faced with the Cuban Missile Crisis and the beginning of war with Vietnam. Gaughan said corporate accounting scandals were also a factor in the early '60s, as was the valuation of the market, and yet stocks continued to move higher.

"I think the trend is upward," he said. "But it's not going to be like the 1990s, where a rising tide lifted all boats."

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