As with any year, we have seen a barrage of media information and uncertainty. In fact, the constant stream creates anxiety and can give investors pause for staying the course with their investment strategy. These emotional impulses can get stronger as each day of reinforcement continues. This is why it’s so important to stick to a disciplined, time-tested approach rather than reacting to the daily headlines. Focusing on the big picture is what helps keep your long-term financial journey on the right track.
The recent conflict with Iran has naturally brought some short-term market volatility, higher oil prices, and an extra dose of inflation. When you’re watching the news, it’s easy to feel like this time is completely different. But if you look back at history, the numbers tell a more resilient story. In over 25 major global conflicts since World War II, stocks historically generated positive performance 73% of the time in the twelve months that followed. While past performance is never a guarantee of what happens next, history suggests that geopolitical events rarely dictate the long-term direction of your portfolio. Most of the headlines causing worry today will eventually take a back seat to broader economic growth and technological progress.
The chart below illustrates this point as it compares returns on the stock market during past conflicts.
We have experienced global conflicts, the imposition and retraction of tariffs, budget deficits, unemployment around 4.3%, and inflation creeping up at 3.8%. Despite those issues, we have seen rising corporate profits, huge investments in AI, and most likely, we will see a significant boost in spending on defense and war material. This naturally impacts tangential businesses. Our markets have been resilient and, while we remain cautiously optimistic, we need to do what we always do: focus on risk. Aggressive positioning can quickly lead to below-average performance if the market turns rapidly. Regular rebalancing is our tool to help manage your portfolio’s intended risk allocation.
Rising oil prices can be viewed as an additional tax when looking at the broader economy. It takes money that would have been spent elsewhere and funnels it to energy. This can impact consumer spending and sentiment, which can slow down the economy. The duration of these higher prices is unknown at this point, but the longer they remain, the greater the chance of persistent inflation and a potential economic slowdown.
We are also seeing an uptick in bond interest rates as shipping restrictions through the Strait of Hormuz keep oil prices over 60% higher than pre-war levels. This has led some investors to believe that the Fed may alter course and hold or raise interest rates before the year ends. Rising yields, however, do reflect some confidence in the economy. Job reports have been better than expected, and the unemployment rate has remained steady.
Markets, professionals, and investors have seen this before. It is often best to focus on historical long-term returns and keep expectations in check. History shows us that above-average returns do not last forever, but if your plan is built around realistic, long-term averages, you are better positioned to work toward your life’s goals. We are here to help you navigate through this ever-changing landscape.
