Stocks have gone nowhere in the last month. Much of this lackluster performance may be attributed to the Israeli conflict with Iran. So, let’s unpack a Middle East war and market projections playbook for the S&P 500 Index (^SPX). While the future is unknown, we’ve come to learn that overreacting often proves costly, suggests Lucas Downey, co-founder at MoneyFlows.
Geopolitical events are never fun to sit through. Whether it’s wars, debt downgrades, tariffs, or rate shocks – uncertainty is unsettling. But should investors hit the sidelines?
A historical lookback at 35 prior geopolitical events proves otherwise. These events include the 1987 stock market crash, Y2K, wars, US debt downgrades, the regional banking crisis, and even the Liberation Day tariff situation.
The S&P 500 tends to show modest, near-term declines, before recovering months later. Here’s how the S&P 500 has performed after major geopolitical events since 1979:
- 1-month average declines of -.5%
- 3-month average gains of 1%
- 6-month gains of 5.2%
- 12-month gains of 9.2%
- 24-month returns of 20.3%
Meanwhile, all Middle East conflicts are different. We can’t be completely certain about the outcomes.
That said, we can learn a thing or two from history. I took the above geopolitical study and singled out six specific Middle East conflicts including:
- The Second Gulf War (Iraq 3/2003)
- Israel/Hezbollah War (7/2006)
- Soleimani Assassination (U.S./Iran 1/2020)
- Israel/Gaza Conflict (5/2021)
- Hamas Attacks Israel (10/2023)
- Iran attacks Israel (4/2024)
While the following study is limited, note how strong equities tended to perform after these shocks:
- 1-month later the S&P 500 gains 1.2%
- 3-months later the S&P 500 jumps 2.8%
- 6-months later the S&P 500 climbs 12.1%
- 12-months later the S&P 500 climbs 15.3%
Given this evidence-based study, what’s an investor to do? Easy. You don’t want to overreact. You should monitor market conditions with powerful indicators like the Big Money Index. If stocks are a bad bet, the BMI will alert you to a change in money flow trends.
