happiness is probably the most tricky resource. I always recommend to watch the dev streams we recorded few months ago. Happiness is in this one (it is already pointing to the part about happiness).
Army size impact is measured per ratio between number of citizens and number of soldiers. There is a “sweet spot” when the happiness impact is very high (I think around 30%) and everything on the right or left side from that sweetspot has impact either less positive impact or even negative. Aka having too many soldiers makes your people not happy as well as having not enough soldiers. The negative impact is not equally negative on those two side of that “curve” - people are more unhappy when they don’t feel secure.
In your case I bet that the problem was high number of soldiers which was “diluted” by newly conquered population.
Also please remember that part of citizens happiness is also so called “national pride” which increases with successful military actions (conquering cities, etc) and decreases when things go wrong on battlefronts.