Recent developments in the Middle East, with the U.S. and Israel launching military strikes on Iran and calling for regime change over the weekend, have understandably raised geopolitical concerns and potential implications for financial markets. While the situation remains highly fluid, we do hope that it ultimately leads to an improvement in the lives of the Iranian people and greater stability in the Middle East.
Regarding the implications on financial markets and investment portfolios, please see our thoughts below.
- We have managed investment portfolios during multiple historic instances of geopolitical events and conflict, and believe our portfolios are well-positioned to navigate the current period of uncertainty.
- Geopolitical conflict is not new. History is filled with wars, political instability, and economic shocks, yet markets have consistently demonstrated long-term resilience and an upward bias over time.
- Look through the noise. We believe maintaining a long-term focus and avoiding making investment decisions based on short-term headlines will be rewarded over time.
- Well-constructed, broadly diversified portfolios across asset classes and geographies are designed specifically for periods of uncertainty and may help protect against any short-term volatility and support long-term investment outcomes.
Geopolitical Events and Conflict are Not New
We believe it is important to step back and view events like this through a long-term investment lens. History shows that geopolitical conflicts and global disruptions have occurred time and again — wars, terrorist attacks, regional conflicts, political instability, and economic shocks. Yet through these events, markets have demonstrated remarkable resilience and a long-term upward bias.
Markets Are Resilient Over Time
The following chart depicts the S&P 500 Index since 1927 and multiple major wars and conflicts over time. Though the market may be impacted by short-term volatility, the long-term resiliency of the stock market is clear.
Source: First Trust
Periods of volatility tied to geopolitical stress are not uncommon. However, markets tend to process new information quickly, and over time, economic fundamentals, innovation, productivity, and corporate earnings have historically been the dominant drivers of long-term returns.
Stay Disciplined. Avoid Reacting to Short-Term Headlines
It’s natural to feel an urge to “do something” when headlines intensify. However, making investment decisions based on short-term noise and media coverage can often be detrimental to your long-term portfolio returns. Markets often move quickly in both directions during geopolitical events. Attempting to time entry and exit points around unpredictable developments can result in missing recoveries, which historically have occurred swiftly and unexpectedly. As the above chart illustrates, we believe remaining disciplined through these times of uncertainty and focused on long-term fundamentals may be rewarded over the long haul.
Diversification Matters
Well-constructed, broadly diversified portfolios may be better positioned to navigate environments like the one we are currently experiencing. Diversification across asset classes and geographies is designed specifically for moments of uncertainty. Different assets respond differently to geopolitical stress; a thoughtful, broadly diversified portfolio allocation may help buffer against any near-term volatility, protecting against short-term noise, and ultimately reward investors over the long term.
We continue to monitor markets and global developments closely.
Mission Wealth is a Registered Investment Adviser. This commentary reflects the personal opinions, viewpoints, and analyses of the Mission Wealth employees providing such comments. It should not be regarded as a description of advisory services provided by Mission Wealth or performance returns of any Mission Wealth client. The views reflected in the commentary are subject to change at any time without notice. Nothing in this commentary constitutes investment advice, performance data, or any recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Mission Wealth manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
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