Markets opened lower this morning following news that the U.S. and Israel launched attacks on Iran, with Iran responding across parts of the Middle East.
Initial reaction? Selling.
But by midday, markets had largely recovered.
So what happened?
Why Markets React First — And Think Second
When major geopolitical events occur, markets typically respond with immediate caution. Uncertainty drives short-term volatility. Investors reduce risk until they have more clarity.
However, markets are forward-looking. After the initial reaction, investors begin asking a different question:
How does this likely resolve?
If market participants believe the situation will be contained, resolved quickly, or ultimately lead to greater long-term stability, prices adjust accordingly.
That appears to be what we saw today.
What Investors Are Watching Now
Several key factors are now in focus:
1. Duration of the Conflict
The shorter the conflict, the better markets tend to respond.
The longer instability continues, the more uncertainty weighs on equities.
2. Oil Prices
Oil moved higher on the news. Rising energy prices can impact inflation expectations and consumer costs. If oil continues climbing, inflation pressures could resurface.
3. Friday’s Jobs Report
This week’s economic data is relatively light until the employment report. A weaker-than-expected report could signal cooling inflation pressures, potentially influencing interest rate expectations.
Markets are constantly recalibrating around inflation, interest rates, and growth expectations.
What History Tells Us
Having started this business in 1987, I’ve seen markets move through:
The original Gulf War
9/11
The Iraq War
The Global Financial Crisis
COVID-19
Multiple regional conflicts
The pattern is often similar:
Sharp initial reaction
Rapid reassessment
Focus shifts to long-term economic impact
Volatility during geopolitical events is not unusual. What matters is how investors respond.
The Bigger Question: What Should Investors Do?
When headlines escalate, investors typically ask:
Should I buy more during uncertainty?
Should I raise cash?
Should I just wait?
The answer is never one-size-fits-all. It depends on:
Your time horizon
Your risk tolerance
Your income needs
Your overall financial plan
Making emotional decisions during geopolitical events can be costly. Markets move quickly — often before headlines fully develop.
Experience Matters in Volatile Environments
Periods like this are when discipline and perspective matter most.
Geopolitical shocks feel urgent. But markets have historically worked through wars, political crises, and international instability.
The key is having a strategy before volatility hits — not creating one in reaction to it.
As always, if you have questions about how current events affect your portfolio or retirement plan, we’re here to help.
Frequently Asked Questions
What happens to the stock market during war?
Markets often decline initially due to uncertainty but tend to stabilize as investors assess likely outcomes.
Should I invest during geopolitical uncertainty?
It depends on your financial plan and time horizon. Long-term investors often focus on fundamentals rather than short-term headlines.
How do oil prices affect inflation?
Higher oil prices can increase transportation and production costs, potentially influencing inflation and interest rate expectations.