NEW YORK—A barrage of headlines about escalating violence in the Middle East sent U.S. equity futures sharply lower Monday, but market historians caution that dumping stocks at the first sign of war has seldom paid off in the long run.
“Every major armed conflict since World War II has produced an immediate spike in volatility, yet patient investors were usually made whole within three to six months,” said a senior strategist at a Wall Street brokerage who was not authorised to speak on the record.
The S&P 500 slid roughly 1.4 percent in pre-market trading after weekend reports of widening hostilities between Israel and Iranian-backed groups. Oil prices briefly topped $90 a barrel and the CBOE Volatility Index touched its highest level since February.
But data compiled by research firm CFRA show that in 14 of the 18 largest geopolitical shocks since 1941—including the Cuban missile crisis, the first Gulf War and last year’s invasion of Ukraine—U.S. blue-chip shares were higher three months after the initial hit. “The median drawdown was about 5 percent and the recovery time was surprisingly fast,” CFRA chief investment strategist Sam Stovall told SourceRated in a phone interview.
Similarly, Dow Jones Market Data indicate the Dow has averaged a 6 percent gain six months after conflict-related sell-offs, even when energy prices remained elevated. “While every situation is unique, markets tend to look past the headlines once earnings visibility improves,” said Lisa Erickson, head of public markets at U.S. Bank Wealth Management.
Still, portfolio managers warn against complacency. A prolonged oil shock or direct confrontation between major powers could test the pattern. “There is no guarantee history will rhyme if inflation re-accelerates and central banks stay hawkish,” noted Andrew Hunter, senior U.S. economist at Capital Economics.
In the near term, traders will parse Thursday’s U.S. consumer-price report and the start of first-quarter earnings season for clues on whether corporate America can absorb higher input costs. Longer term, strategists expect elevated defense spending and reshoring trends to favor industrial and cybersecurity names.
For retail investors unnerved by the headlines, advisors advocate rebalancing rather than retreating. “Stick to a diversified plan,” Erickson said. “War shocks feel awful in the moment, but history shows the biggest risk is selling at the bottom.”