“Re-Escalation and Your Portfolio”

Over the past week, headlines surrounding the re-escalation of conflict and rising geopolitical tensions involving Iran have dominated the global news cycle. For anyone tuning into the news, the sense of uncertainty is palpable. Beyond the primary concerns for human safety and regional stability, investors naturally begin to ask: What does this mean for my money? Should I move to safety until things settle down?

It is completely human to feel uneasy when watching military conflict unfold. However, as investors, one of the most vital disciplines we can practice is distinguishing between human tragedy and market fundamentals. While headline shocks often trigger immediate emotional reactions, history offers a remarkably consistent lesson about how markets absorb and navigate geopolitical crises.

The Knee-Jerk Reaction: What History Teaches Us

When geopolitical conflicts break out or escalate unexpectedly, the stock market’s initial response is almost always a “knee-jerk” sell-off. Uncertainty is the stock market’s least favorite environment, and algorithms and short-term traders often react immediately by fleeing to safe-haven assets like gold, U.S. Treasuries, or cash.

However, when we look at historical data across major post-World War II conflicts—from the Korean War and the Cuban Missile Crisis to the 1990 Gulf War, 9/11, and the Russia-Ukraine war—a clear pattern emerges:

• Short-Lived Drawdowns: Across dozens of major geopolitical shocks over the past 80 years, the S&P 500 has experienced an average initial drawdown of around 5% to 6%.
• Rapid Bottoming: Historical studies by organizations like LPL Research and Hartford Funds show that markets typically reach a trough within two to three weeks after the onset of a geopolitical event.
• Swift Recovery: On average, the market takes only about 28 to 45 days to fully recover its pre-crisis levels—regardless of how long the actual conflict lasts.

While acute events that trigger massive energy shocks (such as the 1973 Yom Kippur War oil embargo) created prolonged economic friction, most military conflicts do not fundamentally alter the underlying engine of corporate earnings and long-term economic expansion.

12 Months Later: The Broader Picture

What happens after the initial storm passes? The data is overwhelming: history demonstrates that geopolitical crises are rarely long-term market destroyers.

Studies examining major geopolitical shock events over the last eight decades show that 12 months after a conflict begins or escalates, the S&P 500 is positive in approximately 70% to 75% of cases. The average return over that subsequent one-year period sits in the high single digits to low double digits.

Why is this the case? Because equity markets are driven over the medium and long term by interest rates, corporate profit growth, technological innovation, and consumer spending—not headline news. Businesses adapt, supply chains re-route, and economic expansion tends to persist despite global friction.

How Should Investors View Geopolitical Risk?

When geopolitical turmoil causes short-term market volatility, the worst mistake an investor can make is attempting to time the market by selling equities out of fear. Here is how we recommend viewing geopolitical risks in your overall wealth plan:

1. Acknowledge the Emotion, But Stick to the Plan: It is entirely normal to feel anxious during times of conflict. However, making drastic changes to your portfolio based on geopolitical news usually results in selling at short-term bottoms and missing the subsequent, rapid recoveries.
2. Focus on What You Can Control: You cannot control international diplomacy or commodity price spikes, but you can control your asset allocation. Ensure you have an appropriate cash reserve so you never become a forced seller during a short-term pullback.
3. Remember the Cost of Missing Out: Historical analysis shows that the stock market’s best single trading days frequently occur in the midst of, or immediately following, major market pullbacks. Trying to sidestep conflict often means missing the sharpest rebound days, severely damaging long-term returns.
4. Maintain Broad Diversification: Well-diversified portfolios across asset classes, sectors, and geographies are naturally insulated against localized shocks. High oil prices, for instance, may drag on consumer stocks while boosting energy sector holdings.

The Bottom Line

Geopolitical shocks are painful to watch and uncomfortable to invest through. Yet history proves time and again that market resiliency wins out over short-term panic.

If your financial goals, time horizon, and risk tolerance have not changed, your investment strategy shouldn’t either. The most effective move during times of heightened global conflict is nearly always to tune out the noise, maintain your long-term perspective, and stay invested.