WARS AND MARKETS: AFTER THE INITIAL SHOCK, RECOVERY ARRIVES

A rebound in the stock markets is already appreciated during conflicts rebound in price lists Source: Farther analysis on TheStreet.com, on the S&P Composite (1872-1957) and S&P 500 (1957 onwards) indices In short, we understand: Israel and Iran don’t like each other. The history of relations between the two countries is long, complex, and in many ways dramatic (with implications in other areas of the region, starting with the Gaza Strip). We’re discussing this not to provide a thorough analysis, which isn’t our role, but to consider the intricate Middle Eastern affairs from the perspective of an investor. Who, rightly, in the face of Israel’s attack on Iran on June 13th, might have asked: what do we do now?

Geopolitical risk has increased, but it is not at its all-time high

This unprecedented chapter in tensions between Israel and Iran even saw the intervention of the United States of America, which on the night between Saturday 21 and Sunday 22 June attacked Iranian nuclear facilities in Natanz, Isfahan and Fordow, in an operation that US President Donald Trump called a “spectacular military success”. This escalation of the conflict, while possibly putting a significant halt to Tehran’s plans to develop its own nuclear arsenal, has certainly heightened the geopolitical risk.

THE GEOPOLITICAL RISK INDEX OVER TIME

We have been through other “hot” situations over the years geopolitical risk – index Source: Wealthype.ai elaboration on Caldara & Iacovello GPR Index What will be the developments following the ceasefire announced by Trump on June 24th and the mutual accusations of violations that began within hours between the two sides? We can only wait and see. Actually, no. Putting ourselves in an investor’s shoes, we can do something else: scrutinize the stock market movements during previous episodes of international tension — which, unfortunately, have not been lacking — and draw useful lessons for today and tomorrow.

Distinguish between short-term fluctuations and medium-long term trends

In hindsight, the recent tensions do not appear to have been able to counter the momentum that has propelled US equities above +22% from the lows of early April (when – remember – President Trump announced universal and reciprocal tariffs). S&P 500 Up More Than 22% From Early April Low Nothing seems to be able to stop the recovery of US stocks S&P rise Source: Wealthype.ai elaboration on S&P Dow Jones Indices data as of June 24, 2025 (Price Return Index) This doesn’t mean that the renewed tensions between Tel Aviv and Tehran have had no effect; on the contrary, it simply means that it’s important to distinguish between short-term fluctuations and medium- to long-term trends. In the short term, the reactions to the Israeli initiative first and the US intervention later were fairly textbook: stock indices fell (then recovered), bond yields rose (then retreated), gold rose (then fell), and the US dollar index rose (then, again, reversed). Furthermore, another issue immediately resurfaced: that of Tehran’s possible closure of the Strait of Hormuz, which separates the Persian Gulf from the Gulf of Oman and through which approximately 20% of global oil exports pass. Overall, the question remains: what to do when the geopolitical landscape becomes complicated? With what mindset can an investor approach these events? Let’s see what precedents tell us in this regard.

How did stocks perform during recent wars?

War entails a degree of uncertainty that markets typically dislike. But it is above all the announcement or outbreak of conflict that triggers sell-offs and a flight to “safe haven” assets, such as gold and some government bonds and currencies. Once the initial reaction has passed, stock markets have always shown a certain capacity for reaction and recovery. They often tend to recover more quickly as the situation stabilizes and/or the extent of the conflict becomes clearer. Beyond current specifics, historical data tells us that stocks are well-suited to withstanding even major geopolitical shocks. On TheStreet.com¹, Louis Llanes, senior vice president of wealth management at the US firm Farther, examined the six months before the start of the conflict, the period in which the conflict took place, and the six months after the end of hostilities, including in his examination the First World War, the Second World War, the Korean War, the Vietnam War, the Gulf War, the War in Iraq, and the War in Afghanistan. The results? They are those shown in the opening graph: – on average, in the six months preceding the conflicts the market fell by -10.14%; – it then rebounded during the tensions, with an average return of +19.74%; – Over the past six months, the average return has been +13.29%. Bottom line: Stock markets fall before a war due to uncertainty, but rebound during and after, as the situation becomes more defined.

When Conflict Breaks Out in the World: 3 Lessons Markets Teach Us

Historical trends are never, in any way, a guarantee of future results. And history rarely repeats itself, even if—as they say—it often rhymes with itself. But from the precedents cited above, we can nevertheless draw three very important lessons. 1. It is always good to follow a portfolio strategy that can capture the rebound and recovery potential of stocks. 2. This implies that, instead of trying your luck with market timing, it is better to focus on building adequately diversified portfolios (even within the same asset class, for example, equities). 3. Finally, the most important rule: don’t panic. Historical evidence is clear on one point: the vast majority of geopolitical events do not impact stock market performance over investment horizons beyond a year. And over the long term, gains reward patience and discipline.

HOW THE VALUE OF $100 INVESTED IN EARLY 1928 GROWN

Despite conflicts and geopolitical tensions, the value has increased over the years growth of the value of 100 dollars Source: Wealthype.ai on Stern NYU data, S&P 500 including dividends

Geopolitical shocks: Markets have learned not to overreact.

In recent years, markets have tended to refrain from overreacting to political and geopolitical shocks. After all, geopolitics only seems to truly affect them when events impact economic growth, inflation, and monetary policy. Everything else—like it or not—is destined to remain in the background in terms of market movements. Knowing this can help keep you calm when things seem complicated. ¹ [https://pro.thestreet.com/market-commentary/how-the-stock-market-reacts-to-war-can-lead-to-a-big-portfolio-payday](https://pro.thestreet.com/market-commentary/how-the-stock-market-reacts-to-war-can-lead-to-a-big-portfolio-payday)