Insights

The escalation of the Israel–USA–Iran conflict has understandably raised concerns. We wanted to share some historical perspective on how markets behave during geopolitical crises and what this means for your portfolio.

What History Tells Us

Financial markets have proven remarkably resilient during armed conflicts over the past 50 years. While wars create short-term volatility, they rarely derail long-term returns when portfolios are properly diversified.

The typical pattern:

• Initial equity pullback of 5–15%
• Sharp moves in oil, gold and government bonds
• Stabilisation within weeks or months as clarity emerges

During the Vietnam War, US equities still delivered approximately 43% in total returns. The 1973 Yom Kippur War triggered a 300% oil spike, but the damage came primarily from pre-existing high inflation and aggressive rate hikes, not the conflict alone. More recent Middle East conflicts have hit commodity markets harder than broad equity indices, but when conflicts stay regional, markets typically treat them as volatility events rather than regime changes.

What’s Happening Now

The direct US–Israeli strikes in late February marked a significant escalation. Markets have responded predictably:

• Oil: Jumped over 50% as Strait of Hormuz shipping was disrupted; prices remain elevated
• Equities: Intraday swings of 2–4%, but moves consistent with geopolitical shock rather than systemic crisis
• Safe havens: Gold rallied to near-record levels; government bond yields initially fell (although have recently increased due to potential inflation)

Importantly, corporate earnings and economic fundamentals remain relatively solid, limiting downside.

What This Means for You

History suggests a measured rather than reactive response:

• Stay diversified – Well-diversified portfolios weather geopolitical shocks better
• Monitor energy and inflation – Higher oil prices are the main transmission channel to portfolios
• Maintain defensive buffers – Appropriate bond and cash allocations prevent forced selling
• Avoid panic decisions – Markets price in news quickly; by the time headlines feel worst, much repricing is complete

What We’re Watching

• Energy supply disruption through key shipping routes
• Whether higher oil prices reignite broader inflation
• Central bank and government policy responses

For long-term investors, staying invested through uncertainty has historically been rewarded. Markets have looked through numerous conflicts over decades. This situation demands monitoring but doesn’t automatically warrant wholesale portfolio changes.

Uncertain about how geopolitical risk affects your situation and investments? Contact your Altitude Adviser and let us help you navigate it confidently.

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