Recent market volatility has been driven largely by the developing conflict in Iran. When geopolitical events unfold, markets tend to react quickly as investors try to assess potential impacts on oil prices, global trade, inflation, and economic growth. While the headlines can feel unsettling, it’s important to remember that short-term market reactions to geopolitical events are common — and historically have not had a lasting impact on long-term investment results.
Simply put, uncertainty often creates volatility. But volatility is not the same as permanent loss.
What History Tells Us
Markets have experienced many geopolitical crises over the past several decades — wars in the Middle East, the Gulf War, the September 11 attacks, the Iraq War, Russia’s invasion of Ukraine, and many others. In most cases, markets declined modestly in the short term but recovered relatively quickly once investors had more clarity.
Research on conflicts since World War II shows that the U.S. stock market has typically declined about 5–7% on average in the early stages of major geopolitical events. In many cases, markets recovered those losses within a matter of weeks, not years.
Looking over longer periods, the pattern becomes even clearer. Historically, the stock market has been higher one year after the onset of geopolitical conflict the majority of the time. The reason is straightforward: while geopolitical events can temporarily affect sentiment, long-term market performance is driven primarily by corporate earnings, innovation, productivity, and economic growth.
Markets have continued to move forward through wars, recessions, political crises, and global pandemics. The path has never been perfectly smooth, but the long-term trend has been remarkably consistent.
What We Are Seeing Today
The current volatility tied to the Iran conflict appears consistent with past geopolitical events. Energy prices have fluctuated as investors assess possible supply disruptions, and markets have responded accordingly. This type of reaction is normal when uncertainty increases.
Importantly, market declines tied to geopolitical shocks have historically tended to be temporary. As more information becomes available and uncertainty begins to resolve, markets typically refocus on fundamentals.
Staying Focused on the Big Picture
One of the biggest challenges investors face is distinguishing between short-term noise and long-term trends. Headlines are designed to capture attention, and periods of uncertainty can make market movements feel more significant than they ultimately prove to be.
A well-constructed portfolio is designed with the expectation that volatility will occur from time to time. Reacting emotionally to short-term events can often do more harm than good, particularly when decisions interrupt a long-term investment strategy.
Maintaining appropriate diversification and staying committed to a long-term plan has historically been the most effective way to navigate uncertain periods.
Bottom Line
While the conflict in Iran has contributed to recent market volatility, history suggests that geopolitical events typically do not derail long-term market performance. Short-term fluctuations are a normal part of investing and are already incorporated into a disciplined investment approach.
We continue to monitor developments closely, but at this point the evidence suggests that the recent volatility is consistent with prior geopolitical events and does not change the long-term outlook for diversified investors.
AS ALWAYS, STAY THE COURSE!!
Joseph C. Paul
Chief Investment Officer