By Logan Gilland, CFP®
Markets opened lower this Thursday morning, reflecting overnight developments. President Trump addressed the nation Wednesday evening on the war with Iran, and the tone was not what many had hoped for. Earlier in the week, market sentiment appeared more optimistic. The President suggested a ceasefire could be close, and markets responded, we saw two solid days of gains heading into Wednesday. Then the speech happened. Rather than an off-ramp, Trump signaled the conflict would continue for another two to three weeks, threatened to bring Iran “back to the stone ages”, and signaled escalation versus the opposite. Oil jumped sharply, and futures sold off. However, the market was bought up in the morning session and ended slightly positive for the day despite oil remaining elevated on the day.
The broader situation remains fluid. Iran has effectively closed the Strait of Hormuz, which carries roughly 20% of the world’s oil supply, and until there’s a real resolution, energy prices and market volatility may stay elevated. There are also real concerns in the broader economy that deserve attention in addition to the inflation risks from increases in oil. We’re watching all of it closely.
That said, history offers some important perspective here. According to research examining geopolitical events since World War II, the S&P 500 has experienced an average decline of roughly 5% following geopolitical shocks, with markets typically bottoming in about three weeks and recovering within one to two months. These observations are based on historical data and do not predict future market performance. Looking across eight major conflicts over the past five decades, the S&P 500 was up an average of 7% one year after the onset of conflict. A reminder that markets have a strong track record of looking through the noise. During certain historical periods, including World War II and the Korean War, U.S. stocks actually rose 17% and 19% respectively, well above long-term averages; however, outcomes have varied across different events and time periods.
That’s the opportunity we believe is beginning to take shape here. Valuations that looked stretched not long ago are becoming more attractive by the day. We’re not ready to say the coast is clear, the conflict could continue for some time, and the economic backdrop warrants caution. But we are paying close attention, and when the time is right, we intend to take advantage of what this environment is creating. Patience right now isn’t passive, it’s the strategy.
As always, if you want to talk through what this means for your specific situation, we’re here.
Talk again soon.