Financial markets continue to experience volatility as the conflict in the Middle East approaches its first full month. As we have discussed in the past, volatility comes with investing, but many investors are still concerned about the potential implications of the current military conflict. As readers of this weekly email know, we like to provide historical context to help frame investor worry and expectation. So, to that end, today’s weekly market commentary examines how military conflicts can rattle markets in the short term but staying invested, despite geopolitical tensions, has the potential to reward patient investors.
The enclosed chart goes back to May of 1940 when Germany invaded France. From there, the chart highlights geopolitical and military events through February of this year when US and Israeli forces attacked Iran. The month and year of each event is noted in addition to the return of the S&P 500 Index 3 months after each event. Additionally, the annualized return of the S&P 500 Index is then shown 1 year, 3 years, 5 years, and 10 years later.
Looking at the data, it can be seen that 3 months after each conflict, the median return of the S&P 500 is -0.7%. Additionally, the Index has only been positive 43% of the time 3 months later. Moving out the time frame, 1 year after each conflict, the median annualized return has been 9.7% with the Index being positive 73% of the time – a considerably difference from the 3-month mark. 3 years later, the median annualized return has been 9.1% with the Index being positive 86% of the time. 5 years later, the median annualized return has been 9.6% with the Index being positive 95% of the time. And finally, 10 years after each of the geopolitical and military events highlighted, the median annualized return of the S&P 500 Index has been 10.5%. And, impressively, the Index has been positive 100% of the time 10 years after each event.
The current Iranian conflict has by all means inserted volatility and uncertainty into financial markets. But the advice to keep front of mind, and as the piece and data shows, is that “geopolitical uncertainty can cause short-term market volatility, but the stock market has been resilient. In fact, stocks generated positive performance one year after an act of aggression for 73% of the armed conflicts since World War II. The longer the investment time frame, the more likely a positive return.” – CCWP114_0326 5263611
We would ask that you review the attached piece at your convenience and please let us know if you have any questions or if you would like to discuss it further. And as we always end this correspondence, please remember that regardless of current momentum and regardless of the key takeaways in this weekly perspective, we will continue to monitor and manage with a thoughtful approach based on your specific long-term objectives. Thank you for your continued confidence and look forward to speaking soon.
