The ongoing conflict in Iran has sparked significant concern among investors, particularly since U.S. airstrikes began on February 28. The turmoil has led to the closure of the economically crucial Strait of Hormuz, effectively halting oil and gas shipments essential for global markets. As a result, oil prices have surged, causing anxiety and prompting many investors to retreat to cash or bonds, seeking safety amid rising unrest.
Despite this backdrop of global uncertainty, stock markets have demonstrated resilience. On Thursday, the S&P 500 index achieved a record closing value of 7,041.28. After a slow start to 2026, the index is now up 2.9% year to date and has surged 11% since hitting a low on March 30, amidst the conflict.
The human cost of war is tragic, instilling feelings of worry and distress in those following the news. However, historical trends suggest that wars, while devastating for those directly affected, do not typically derail the stock market. Research indicates that there is little correlation between recent conflicts and prolonged stock market downturns. This trend holds true for both smaller conflicts and major disruptions involving significant global players like Russia and Ukraine. For instance, since the onset of the Russia-Ukraine conflict in February 2022, the S&P 500 has risen by over 60%.
One primary reason for the stock market’s ongoing uptrend amidst war is the impact on corporate earnings. Investors are drawn to stocks primarily because they represent future corporate profits, and generally, most companies remain unaffected by geopolitical strife. Although the current conflict has resulted in alarming images of drone strikes and burning oil infrastructure, many businesses continue to perform well financially. Analysts predict a 12% earnings growth for the S&P 500 in the current quarter, with profit margins reaching a record high of 15% as of early April.
Furthermore, concerns regarding bonds as a safer investment may be misplaced. For instance, the yield on the U.S. 10-year Treasury bond rose significantly, indicating a decline in bond prices following the conflict. As bond yields increase, associated prices typically decrease, posing risks for bondholders. In fact, the Vanguard Total Bond Market Index Fund saw a decline of approximately 3% in the period following the conflict’s escalation. Wars typically strain government budgets, leading to increased borrowing that can adversely affect bond investors.
Turning to cash as an alternative investment may not be the best strategy either. High-yield savings accounts currently offer around 4% APY, barely keeping pace with inflation and providing negligible growth that falls short of long-term financial objectives.
While the future remains uncertain and the global landscape unpredictable, historical evidence suggests that maintaining a long-term investment strategy is typically the soundest course of action amid warfare and geopolitical crises. Investors are cautioned against reacting emotionally to distressing news, as premature selling could result in missed opportunities as markets recover. The focus should instead be on a disciplined investment approach, leveraging the potential for market growth that often follows periods of turmoil.
