War, Markets, and the Bounce‑Back Nobody Expects

30 April

Geopolitical shocks can feel unsettling. Headlines turn negative, uncertainty rises, and markets often react sharply. But when we zoom out and look at more than 80 years of market history, a clear pattern emerges:

Markets usually fall quickly when a conflict begins — but they also tend to recover faster than most people expect.

This pattern has held across dozens of major events in the 20th and 21st centuries, and it provides useful context for understanding the current situation involving Iran.

What the research shows

1. Conflicts create short‑term volatility, but markets often stabilise quickly

Historical analysis of 31 major conflicts since 1939 shows that markets typically experience an initial drop, followed by a recovery within weeks to months once the scope of the conflict becomes clearer.
This pattern has repeated across World War II, the Gulf War, 9/11, and Russia–Ukraine.

2. Geopolitical events rarely cause prolonged market downturns

A review of more than 250 major market declines found that domestic economic factors — inflation, interest rates, recessions — were far more predictive of sustained downturns than geopolitical events themselves.

In other words:
Markets tend to price in the worst early, then recover as uncertainty reduces.

3. The exceptions occur when conflicts trigger economic shocks

Conflicts only cause prolonged market stress when they create secondary economic effects, such as:

  • energy supply disruptions
  • inflation shocks
  • recessions
  • policy tightening

This is why the 1973 oil embargo and the 1990 Gulf War had deeper market impacts — the economic channel, not the conflict itself, drove the downturn.

What this means in the context of the current Iran conflict

The developing conflict involving Iran has understandably created market volatility.
Based on the historical evidence:

  • Initial market drops are normal during geopolitical shocks
  • Markets often stabilise once the situation becomes clearer
  • Long‑term declines typically require an economic transmission mechanism, such as a sustained oil shock

At this stage, markets are reacting to uncertainty — not to a confirmed economic disruption.

The evidence suggests that geopolitical events alone rarely derail long‑term returns, and that staying invested has historically been the most effective strategy.

What this means for Intech clients

Your portfolio is built with the expectation that shocks will occur.
We do not reposition based on headlines.
We adjust only when the economic data confirms a change in the underlying regime.

History shows that reacting emotionally to the first drop during a conflict has often been one of the most damaging investor behaviours.

C & M

References

These are the sources supporting the historical patterns discussed above:

 

 

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