What the Conflict in Iran Means for Investors

The U.S. and Israel launched major attacks on Iran over the weekend with the stated objective of destroying Iran’s ability to obtain a nuclear weapon. Military action has resulted in the death of Iran’s Supreme Leader and many senior leaders in his government. News reports indicate there have been several American casualties so far, and the President has said there may be more to come. Iran and its proxies are retaliating by carrying out attacks on America’s allies seeking to destabilize the Gulf region. Oil prices have spiked, as is typical when tensions in oil-producing regions escalate, and gold has taken a leg up as often happens during a war scare. While the action against Iran is certainly a significant military and political event with far-reaching consequences, so far, the stock market is largely taking it in stride.

Geopolitical crises and distant wars do not tend to hold back the market for very long, though it is common to see volatility as the news breaks. Post-9/11, the S&P 500’s largest and most prolonged drawdown was related to the 2019 Saudi Aramco drone strike, which led to a retracement of 4% over the following 19 days with a full recovery requiring 41 days. The average total drawdown of such crises going all the way back to Pearl Harbor is a decline of 5%, reaching a bottom in 22 days followed by recovery in 47 days.

Combat operations are chaotic by nature. A well-known military maxim is that “no plan survives first contact with the enemy.” While the intent may be to have this wrapped up within a few weeks, it cannot be taken for granted. It is early in the situation’s development, and too soon to determine the full market impact; however, as long-term investors, for now, we do not believe the situation warrants a shift in strategic direction of our clients’ portfolios. Please feel free to reach out to [email protected] with any questions or feedback, or contact your portfolio manager directly.