By: Chad Warrick
Co-President & CEO
Recent headlines surrounding the U.S. bombing of Iran sparked a quick reaction across markets. In the immediate aftermath, oil prices soared on concerns over supply disruption, equities pulled back as risk was repriced, and bond yields rose as investors adjusted expectations for inflation tied to energy.
The notable thing is how quickly markets began to stabilize. Within days, equities recouped much of their initial losses, oil prices retraced as fears of prolonged disruption eased, and bond markets settled as expectations recalibrated. While volatility has increased, the initial shock phase appears to have passed, with markets now shifting from reaction to a more measured assessment of potential outcomes.
A familiar pattern
This type of market behavior tends to follow a familiar sequence. Markets often weaken ahead of a conflict as uncertainty builds and investors attempt to price in a wide range of possible outcomes. Once the conflict begins, some of that uncertainty is reduced (even if conditions remain complex), and markets are able to stabilize and refocus on underlying fundamentals.
History offers several clear examples. In the early 1940s, equities declined as global tensions escalated but moved higher after the United States formally entered World War II and economic activity accelerated. During the Gulf War, markets fell in the months leading up to military action and then recovered quickly once the conflict began. In 2003, equities reached a low just before the Iraq invasion and advanced in the months that followed.
The common thread is that markets respond more to uncertainty than to the event itself. Once uncertainty begins to lessen, markets tend to re-anchor around fundamentals.
A familiar lesson
We see that dynamic playing out again today. The primary transmission mechanism remains energy, with oil prices influencing inflation expectations, interest rates, and ultimately equity valuations. However, unless a conflict meaningfully alters the broader economic trajectory, history suggests the market impact tends to be temporary, not structural.
None of this minimizes the seriousness of geopolitical events, but from an investment perspective, it reinforces a familiar lesson: Periods of heightened uncertainty often feel the most uncomfortable at the very moment markets are in the process of adjusting.
As always, maintaining a long-term perspective remains critical. While headlines may fuel short-term volatility, the more durable drivers of returns – including earnings growth, innovation, and economic expansion – have historically reasserted themselves over time.
