I'm sure many of you have some questions about how the US strikes on Iran may impact markets, so let's get right into it!
In my opinion the biggest impact in the short term, the one that we will feel the most here at home anyway, is at the gas station. Any time you get conflict in the Middle East it tends to send oil prices higher which, in turn, sends our gas prices higher. The Middle East is a big oil producer and any disruptions to their production or delivery of oil impacts price. 20% of global oil supply passes through the Strait of Hormuz in Iran. Consequently, oil has jumped from around $65 per barrel last week to about $77 per barrel as of this morning. When I drove into work last week, the station around the corner had gas at $2.59. Today that price was $3.29. That's a big jump in a short period of time and this, in my opinion, is the biggest negative impact we're likely to see.
Now, it is true that these events also can impact the stock market. Anything that creates uncertainty tends to create volatility in the stock market. But looking at the historical data, those impacts tend to be more of a blip on the radar than sustained headwinds that lead to real long-term erosion of stock market prices. Just take a look at the chart below which really helps put things into perspective.
If you open that you'll see dozens of geopolitical conflicts throughout history overlayed onto a chart of the S&P 500. While they may cause some short term pullbacks (like we're seeing now), overall the market has remained resilient.
Now let's take a look at this next chart which shows us some of the major geopolitical "shock" events over the past 85 years and how they impacted the market in the short term and how long it took the market to recover.
History of Geopolitical Shocks
In the chart above you'll see that these events do tend to have a negative impact in the short run, but the market has been higher one year later the majority of the time, usually by double digits.
And finally, I want to show a chart that just speaks to market corrections in general. As I always say, corrections are normal and we should expect them. This next chart shows us all of the 10% or greater corrections going back to 1980 and how the market performed in the years following.
We see in this chart that from 1980 to 2022 there were more than THIRTY 10% or greater corrections in the stock market. So the first takeaway is simply that these things happen pretty regularly, although the reason for them is always unique. But the average return 1yr following a 10% or greater correction is about 25% and nearly 40% over the following 2yr period. This is exactly why I always encourage investors to simply stay invested when market get volatile, regardless of the cause of the volatility. Forward returns have historically been quite strong following corrections.
So my advice today is the same advice I have given during previous times of market turbulence: Stay calm, stay patient and stay invested. This too shall pass.
*The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.