IndiView Chart of the Week: Geopolitical Shocks

Recent geopolitical events have caused some market turbulence. On June 13, Israel struck targets in Iran, sending oil prices sharply higher. This was followed by US airstrikes at Iranian nuclear facilities on June 22 and a counterattack by Iran on US bases in Qatar on June 23. Despite the escalation and US involvement, markets largely shrugged off the conflict. Through June 27, the S&P 500 had reached an all-time high and was up 4.42% month-to-date.

At IndiWealth, we believe the best way to assess the financial influence of geopolitical shocks is to look at history – while recognizing that each situation is unique. The chart below shows the performance following various conflicts in the past two decades (not including the most recent).

As you can see, markets have experienced both downturns and rallies during the 3-month, 6-month, and 1-year periods following a geopolitical event. The sharpest decline occurred after September 11, 2001 (-17%) while the highest return came a year after Hamas attacked Israel in October 2023 (+33%).

For this most recent conflict, the S&P 500 dipped briefly before rallying. Oil prices told a more dramatic story – WTI Crude peaked at $78.40, then fell nearly 17% to close June at $65.08. Markets appear to be signaling these current events, while serious, are not expected to derail economic growth.   

As is true for most market events, it is important to remember that geopolitical shocks do not occur in isolation and market reactions are often shaped more by expectations for the future than by events that have already occurred. 

For example, the Russian invasion of Ukraine in February 2022 is the only event listed with negative returns across all three time frames. Does this mean this conflict was the most disastrous to economic growth? Not necessarily. This event happened to coincide with a surge in inflation to 30-year highs. While the invasion may have contributed somewhat, post-COVID fiscal stimulus and supply-chain disruptions were equally – if not more – impactful on equity prices. 

When geopolitical shocks occur, there is usually a sharp early reaction as concerns around the potential for further escalation flare up. Over the long-term, however, stock performance tends to gravitate back toward the basics that drive markets: economic growth and corporate earnings. 

Final Thought

History shows that geopolitical shocks, while harmful to affected regions and tragic in human cost, are poor predictors of imminent market collapse. Trading on the fear of these events is often an emotional decision rather than strategic. Feeling uneasy and concerned is completely natural, but a well-designed investment strategy builds safeguards for these times of heightened volatility and doesn’t eschew the long-term focus based on short-term shocks.

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