Iran War and Your Portfolio: Historical Stock Market Patterns

Escalating wars in the Middle East rocked stock markets on Tuesday. History suggests that this reaction, which is common after global shocks, is often short-lived.

The market rebounded on Wednesday morning, but Standard & Poor’s 500 IndexThe stock price, a broad indicator of how U.S. company stocks are performing, ended Tuesday down 0.94%. of Dow Jones Industrial Average Reduced by 0.83% and packed with technology Nasdaq Composite Index It fell by 1.02%. But earlier in the day, all three companies were down at least 2.5%.

The decline earlier in the day was largely due to concerns about disruption to global trade, including oil flows, until President Donald Trump announced the United States would facilitate shipping passage through the Strait of Hormuz, a key maritime route.

History shows that stock market volatility is to be expected.

The average weekly decline in the S&P after the first geopolitical shock was 1.09%, according to the Stock Traders Almanac, which analyzes 17 events since 1939.

The biggest one-week increase was 13.51%, after Germany invaded Poland on September 1, 1939, generally considered the start of World War II. The highest one-week loss was 17.90% when Germany invaded France on May 10, 1940. According to the analysis, in the year following each incident, S&P posted losses of 5.55% and 20.87%, respectively.

Most recently, the S&P rose 3.27% in the first week after Russia invaded Ukraine on February 24, 2022, but one year later, the index was down 6.05%.

But Jeffrey Hirsch, editor-in-chief of the Stock Traders Almanac, said economic conditions were “pretty weak” in the weeks and months after the invasion. “The writing was on the wall that inflation was about to skyrocket.

“The economy appears to be on a more stable footing this time,” Hirsch said.

But “this conflict is still in its early stages,” Hirsch said. “Right now, the market is not saying that oil prices will go up. Oil prices will go up even more,” he said.

Oil prices soared after the US and Israeli attack on Iran, but have since fallen.

Historically, the S&P has risen an average of 2.92% 12 months after a new crisis, according to Stock Traders Almanac analysis. The largest one-year increase was 32.2% after the start of the Gaza war on October 7, 2023. The largest loss was 34.30% in the year following the Arab oil embargo that began on October 19, 1973.

It’s impossible to predict where the market will go from here. of CBOE Volatility IndexThe S&P’s expected volatility over the next 30 days stood at about 23 as of Tuesday. By comparison, the index had soared to 52.3 in April 2025, when new tariffs and surrounding uncertainty brought the market down.

Volatility may be uncomfortable for investors, but history also shows that markets recover.

“If you have an investment strategy, stick to it,” says certified financial planner Lee Baker, founder, owner and president of Claris Financial Advisors in Atlanta and a member of the CNBC Financial Advisors Council. “Don’t change your mind just because you think, ‘Oh, there’s going to be a war, it’s over, I’m going to lose all my money.’ That’s the way you think.”

For long-term investors, those who don’t need to tap into their assets for years, if not decades, financial advisors typically recommend holding on to the status quo to weather the market storm.

Research shows that even in a bear market, missing out on the stock market’s best days can hurt investors.

For example, The Hartford Funds says that if you miss 10 of the market’s best days over the 30-year period ending in 2024, your returns will be cut in half. And if you miss the best 30 days, your revenue will drop by 83%. Additionally, the study found that 78% of the stock market’s best days occurred during a bear market (50%) or the first two months of a bull market (28%).

But if you’re feeling particularly anxious about market volatility, financial advisors say that’s a sign you may need to reevaluate your risk capacity and tolerance. These record how long you have to start spending your invested money and how well you can withstand the ups and downs that come with investing in the stock market.

Baker said portfolios “usually require some tweaking,” such as going from 80% stocks and 20% bonds to 75%, 70%, or 60% stocks and the rest bonds.

“Usually you don’t lock in huge losses,” Baker said. “If it helps you sleep at night, it might be worth the risk.”