As the war in Iran continues, oil prices rise, and the mainstream media captures our attention with apocalyptic headlines, my aim is to cut through the noise for what is important to consider for investors.
For context, the US and Israel launched their coordinated attack on Iran on February 28, 2026. Since then, the S&P 500 is down ~7.8%, at the time of writing. Oil prices are currently at $102/barrel, up from $67/barrel pre-conflict.
And while there is no crystal ball to say when markets will reach their exact bottom, there are several important things to bear in mind:
- Markets bottom once the worst assumptions are priced in, not when the war ends.
Given that markets are reacting to a war, it is natural to assume they will continue to do so until the war is over; however, this is not entirely the case. Investors are purchasing ownership in companies based on future expectations, not the present circumstances. As such, when investors calculate the value of a stock, they need to make some assumptions, or guesses, about the future. The worse the assumptions, the lower the price investors are willing to pay.
Typically, the worst news cycles coincide with when the worst assumptions are priced into stocks. Consider this idea for a moment…it is when investors feel most concerned, that markets near their bottom. Once the worst is priced in, all news, including bad news, is almost always better than the worst-case scenario.
A Recent Example
While not identical, we have a fairly recent example of a war that had risk of geographic escalation and triggered an oil price shock; the Russian invasion of Ukraine. The S&P 500 reached its bottom in October 2022, eight months after the conflict began. At this point, the economic impacts of the war remained serious, but the worst scenarios had already been priced in. Recall that in October 2022:
- Inflation was at 7.7% year-over-year.
- The Federal Reserve was aggressively hiking interest rates. These hikes continued through August of 2023.
- Putin had just formally declared annexation of four Ukrainian regions leading to the Washington Post publishing an article with the headline, “Russia’s annexation puts world ‘two or three steps away’ from nuclear war.”
Even as Russia continues its offensive in Ukraine today, the markets have long recovered from their 2022 lows.
I find it helpful to remind myself that, even during troubling periods, consumers, business owners, and global political leaders are trying to make the best of the current set of circumstances. People do not tend to stand idle and allow themselves to become worse off. An example of this is if gas prices rise significantly, consumers will use less electricity and travel less, and businesses prioritize running more efficient operations. These actions reduce energy demand thereby reducing energy prices. This happens with virtually every good: gas, coffee, copper, chocolate, etc. In other words, the solutions that arise from problems like supply constraints and high prices are usually far better than what we fear during our most dire moments.
Here are a couple of other factors I believe could mitigate things in the future:
- President Trump is sensitive to markets.
Over the past 14 months of the Trump Administration, we have seen the administration’s ability to influence markets for better and worse. President Trump also appears to be both cognizant and sensitive to structural market fluctuations. It is also an important mid-term election year. None of these observations are meant to suggest that markets will be quick to resume all-time highs. However, it does appear probable that Trump and his team will continue to be sensitive to both markets and economic metrics that hit closest to home (like the price of gasoline).
- Declines in the market are expected…
Market declines like we have seen are, in fact, the norm. According to Capital Group, markets declined by 5% or more 79 times between 1966 and 2024. Thus, a market correction of this amount occurs on average every 10.6 months. In other words, based on history, the market circumstances we are currently dealing with at this point are fairly routine.
In a Nutshell
Here are some takeaways from all of this:
1) The bottom of the market is difficult to predict and often corresponds with when market sentiment is worst.
2) The Trump Administration may take action to appease markets and provide relief to oil and gas prices if they remain too high for too long thereby becoming an election issue. Additionally, both businesses and consumers will adjust their habits and strategies to naturally reduce energy demand.
3) Based on history, the current market sell-off is routine.
I encourage you to view these circumstances through the lens of a long-term investor and see moments like this as opportunities to invest in great companies with excellent prospects for the future. Please contact me if you have questions about your personal circumstances or how to take advantage of the current market conditions.
All investing involves risk and there is no guarantee that any investment strategy will be successful. Past performance is no guarantee of future results. Indexes (indices) referenced are unmanaged and cannot be invested into directly.