In the wake of the escalating U.S.-Iran war, stock markets have demonstrated a historically familiar response: an immediate selloff, followed by volatility and a gradual recovery. Scott Helfstein, the head of investment strategy at Global X, observed in a recent note that while initial reactions can lead to significant declines, markets often rebound quickly. He noted, “Geopolitical events generally lead to brief periods of heightened volatility, but markets are usually quick to recover losses and tend to move higher in the subsequent weeks.”
Data from the Stock Trader’s Almanac supports this perspective, revealing that since 1979, the S&P 500 has, on average, increased by 2.2% in the month following major conflicts, geopolitical disruptions, or energy crises. This historical trend can be comforting for investors; however, during turbulent times, the instinct to withdraw from the market is a common reaction. Recent history serves as a reminder of the risks associated with such decisions, particularly the notable 19% drop in the market triggered by new U.S. tariffs in 2025.
Financial experts generally caution against making drastic changes to long-term strategies based on short-term volatility. Helfstein reinforced this sentiment, urging investors to avoid withdrawing their investments: “The biggest mistake an investor can make is moving out of the market, which increases the risk of missing a bounce or new highs.”
A prevalent concern for many investors is whether they can effectively time the market to sell before a downturn and re-enter before prices rise again. While it’s true that selling before significant drops may protect against immediate losses, success hinges on accurately timing the reinvestment. Research from Hartford Funds illustrates the long-term risks of missing out on market movements. An S&P 500 investor who invested $10,000 in 1995 and maintained their investment until 2024 would see a value of approximately $224,000. However, if they missed the 10 best days, that amount plummets to around $103,000, and missing the best 30 days reduces it to about $38,000. Notably, 50% of the best market days occurred during bear markets, indicating that high returns can arise even amid significant downturns.
So, how should investors react amidst market fluctuations? Ideally, according to Ryan Detrick, chief market strategist for the Carson Group, the approach should involve increasing investments in a diversified portfolio during market dips. He likened the stock market to a store that offers discounts, suggesting that savvy investors see declines as opportunities to buy valuable stocks at lower prices.
Christine Benz, director of personal finance and retirement planning at Morningstar, also emphasizes the importance of detaching emotionally from market news to stabilize investment practices. She recommends automated contributions to investment accounts, which allow investors to bypass the anxiety associated with daily market fluctuations. With a solid asset allocation in place tailored to individual investment goals, investors can confidently navigate through geopolitical or economic disturbances. Benz asserts, “Down markets are a great environment to put additional funds to work if you’re in a position to do so.”
In summary, amidst the current geopolitical tensions, history suggests that stock markets may stabilize and recover relatively quickly. For long-term investors, maintaining a consistent investment strategy and avoiding panic-driven withdrawals could prove beneficial in navigating these uncertain times.
