Geopolitical Crises Have Rocked the S&P 500 Before. Every Single Time, Patient Investors Came Out Ahead.

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The war in Iran is taking a toll on the U.S. economy, with gas prices surging 17% and crude oil prices rising above $100/barrel. The S&P 500 is down 3.1% over the past month and 3.8% from its January high, raising recession concerns. However, the research shows that while stocks suffer during the early part of a recession, they have always recovered and gone on to reach even greater heights, regardless of geopolitical crises.

Why it matters

This case highlights the importance of long-term investing and not panicking during times of geopolitical turmoil. Even major events like the 9/11 attacks and the subsequent wars in Iraq and Afghanistan did not prevent the markets from eventually recovering and continuing to grow over the long term.

The details

The S&P 500 has dropped 3.1% over the past month and 3.8% from its January high due to the war in Iran, which has caused gas prices to surge 17% and crude oil prices to rise above $100/barrel. An economic model by the New York Fed showed an 18.7% chance of a recession by January 2027 even before the war began. However, research by The Motley Fool shows that while stocks suffer during the early part of a recession, they have always recovered and gone on to reach even greater heights, regardless of geopolitical crises. For example, during the COVID-19 recession, both the S&P 500 and Nasdaq Composite dropped sharply but had fully recovered by the end of July 2020. Similarly, while the 9/11 attacks sent stocks lower, they had rebounded somewhat by November 2001, and both the Nasdaq and S&P 500 went on to long-term success despite the ongoing wars in Iraq and Afghanistan.

• In February, an economic model by the New York Fed showed an 18.7% chance of a recession by January 2027, and that was before the war even began.
• During the COVID-19 recession of February to April 2020, the S&P 500 eventually tumbled 33.9% from its pre-recession high and the Nasdaq fell 30.3%, but both indexes had fully recovered by the end of July 2020.
• After the 9/11 attacks in September 2001, the Nasdaq bottomed out in 2002, while the S&P 500 didn't hit its lows until early 2023. However, both went on to long-term success, in spite of the ongoing wars in Iraq and Afghanistan that followed 9/11.