Don't Bail on Stocks

Historically, the market impact of geopolitical shocks is sharp but often short-lived. Looking at major events since World War II, the S&P 500's average one-day decline is just -1.1%, with the market typically finding a bottom in about 19 days and fully recovering losses within 42 days. For example, after the 9/11 attacks, U.S. markets fell roughly 11% in the first week of trading but recovered those losses in about a month. Similarly, during the 1962 Cuban Missile Crisis, the S&P 500 dropped about 7% but regained its footing in just over two weeks once the conflict de-escalated. Oil price spikes present a more complex threat, as they can increase corporate costs for sectors like airlines and shipping and potentially fuel inflation. Following recent military operations against Iran, West Texas Intermediate crude surged 66% in just over a week, the fastest rise in over 40 years. However, the link between oil prices and stock performance isn't always negative; rising energy prices can also signal a growing economy. A key historical exception was the 1973 oil embargo, which coincided with a U.S. recession and saw the S&P 500 take six years to recover its previous level. Attempting to time the market by selling can be costly, as the strongest recovery days often occur during periods of intense volatility. One analysis of a hypothetical portfolio showed that an investor who stayed fully invested from 2004 to 2024 earned four times more than an investor who repeatedly moved to cash during downturns. Instead of exiting, investors often turn to defensive sectors like consumer staples, utilities, and healthcare. These sectors tend to show more resilience during economic downturns because they provide essential services that remain in demand. Another strategy is dollar-cost averaging—investing a consistent amount at regular intervals. This disciplined approach removes emotion from decision-making and can reduce the impact of short-term market swings on a portfolio.