“If it is obvious, it is obviously wrong.” George Granville, famous English Poet
Thereโs much to unpack in global markets with the breakout of conflict in the Middle East.
Global financial markets are acting as one might expectโฆ
Stocks down
U.S. Dollar up
Energy up
Volatility is spiking
Bond yields up as inflation fears resurface
The fear is that a prolonged Middle East conflict could disrupt supply chains and cause an inflation shock.
Source: Koyfin
The above graph shows the S&P 500 (blue), U.S. Dollar Index (purple), oil (orange), and volatility (VIX, yellow) over the past month. The market often overreacts and asks questions later. The recent market movements follow a similar pattern to previous conflicts in the Middle East.
We arenโt experts on Middle Eastern affairs, geopolitics, nor do we pretend to know how the Iran-U.S. conflict ends. However, we can look at history to understand the range of potential outcomes, how various asset classes have reacted to previous conflicts, and how investors can digest whatโs happening.
Letโs look at S&P 500 performance after every major event since WWII…
Source: Carson Wealth, Ryan Detrick
The above graphic shows major geopolitical events and future 1-month, 3-month, 6-month, and 12-month returns for the S&P 500. Negative returns tend to cluster over the short-term, especially in the 1โ3-month window. Investors would do well to expect some dislocations as markets digest the blitz of short-term headlines.
Looking specifically at conflict, we can chart the S&P 500โs movements 12-months after every war since WWII…
Source: S&P Global, Bloomberg, Cryptorand X Account
The above graph shows the average one-year performance for the S&P 500 after the start of every conflict since WWII. The S&P 500 was up ~24.9% one year after every war the U.S. was directly involved in (with Russia โ Ukraine the exception).
What if supply chains are disrupted and energy prices spike?
Source: Bespoke Investment Group
The above chart shows future S&P 500 returns after crude oil surges to overbought levels (1985 โ 2026). Future returns for the S&P 500 are positive (green bar) despite crude oil prices spiking.
What about downside risks to stocks?
Not every instance of global conflict has ended well. There have been plenty of occurrences where stocks dropped…
Source: Deutsche Bank Asset Allocation
The above chart shows geopolitical events since WWII. We are interested in โtime to bottomโ measured in days (third column) and size of selloff (%). The average time to bottom is 16 days, with an average selloff of 7.5%. Compared to history, the recent drawdown for the S&P 500, ~1% (as of 3/4/26), has been muted relative to previous conflicts.
How can the humble investor lean into history to better understand todayโs conflict?
- Stock prices often swing wildly in the months following conflict
- Volatility spikes as markets price in the worst case, only to normalize as the situation evolves
- Market reaction is a function of expectations. Is the conflict worse than expected? Will it go longer than expected? What is the market currently pricing in?
- While we can use history to provide context on how previous conflicts have unfolded. This time could be completely different. We do not pretend to know how the current conflict ends or the unintended consequences on the global economy.
In our opinion, investors would do well to focus on what they can control; risk exposures, position sizing, diversification, knowing what they own.
Weโve spoken to many investors that are very much in tune with how they are doing from a performance standpoint, but offer a blank stare when you ask how much risk they are taking. Obsessing over performance without the context of risk usually doesn’t end well.
If you have questions about portfolio construction, risk management, and how to make non-emotional investment decisions, shoot us a note at [[email protected]](mailto:[email protected]).
