The beginning of the war (or removal of Saddam by other means) takes out two things weighing on equities:
- the uncertainty that currently exists regarding Iraq (don't forget U.S. credibility is on the line here too)
- over-inflated oil prices. Apparently the result of speculation, as there appears to be no supply problem causing the rise in prices.
So, I think an immediate rally.
Russia has already expressed concerns about oil potentially going sub-$21 after the war is settled and Saddam is gone.
Low energy prices very good for the world economy, not to mention the foreign policy victory (assuming a quick victory in Iraq which is very likely) is good for Bush's political capital, as he pursues investor-friendly and "supply side" policies, so I think Saddam's removal results in higher equity prices both long and short term.
Although this should not be used as a justification for a war, the only moral justification should be for the protection of the U.S. and its citizens.