An old investing saying (often attributed to Baron Rothschild) urges buying when there is “blood in the streets.” It’s deliberately confronting, but the lesson is familiar: markets typically recover from geopolitical shocks faster than most people expect. Q1 2026 and the war in Iran is shaping up as another example of this.
Momentum, then a shock
2026 opened positively. After a volatile but rewarding 2025, where global equities rose roughly 21% despite an April tariff-led sell-off, investors started this year with cautious optimism. Corporate earnings were growing, central banks remained supportive, and market leadership was broadening beyond US mega-cap technology stocks.
January and February delivered steady gains. In March, the escalation of conflict between the US and Iran jolted markets: oil surged, energy stocks rallied, and equities eased as investors revisited “stagflation” fears (higher energy-driven inflation alongside moderating growth).
The measured decline tells its own story
What was notable about the March sell-off, was what it didn’t become. Markets slid gradually through the month, but they didn’t collapse. The decline was measured, not panicked. Despite the war and closure of the Strait of Hormuz, global markets fell less than 7% in March, and the US market fell just 5%. This matters, because the magnitude of a market’s reaction to a geopolitical event often tells you how investors are collectively assessing the likely duration and severity of the crisis.
A moderate drawdown implies that investors see a base case of containment: a disruptive but short-term conflict, but not enough to derail global expansion. If investors expected a prolonged regional war, such as an extended closure of the Strait of Hormuz, the decline would likely have been faster and deeper.
The early April announcement of a two-week ceasefire has validated this assumption, at least for now. Global equities have rebounded meaningfully in the days since, recouping a significant portion of the March decline.
History’s uncomfortable but reassuring pattern
Markets have digested armed conflict before, and they will again. Studies suggest the average geopolitical shock triggers roughly a 5–10% drop in markets, with recovery often within one to three months.
In 1990 (Iraq/Kuwait) the S&P 500 fell about 16% over three months, then rallied once the campaign proved swift. In 2003, markets bottomed around the start of the Iraq War. Crimea (2014), the Soleimani assassination (2020), and Russia’s invasion of Ukraine (2022) also produced an initial shock followed by recovery as investors moved from worst-case fears to more realistic outcomes.
The reason for this pattern is that markets are forward-looking. They sell off on uncertainty, but they don’t wait for perfect news to recover. As the range of outcomes narrows, even if headlines remain grim, investors begin pricing the most likely path, which is often less economically damaging than first feared.
Volatility creates opportunity
While the human cost of conflict demands sober reflection, volatility can create opportunity for investors. March’s pullback improved valuations in areas that had previously looked expensive.
Growth stocks now trade at their cheapest relative valuations to the broader market since 2016. High-quality businesses with durable earnings and pricing power can be bought at more attractive prices than a year ago. Even the “Magnificent Seven” large US technology firms now look inexpensive relative to their own history.
For investors with appropriate risk tolerance and a long-time horizon, periods like this can reward adding to equities rather than retreating.
But we’re not out of the woods
That said, honesty demands that we acknowledge the risks. The ceasefire is encouraging, but it is a two-week pause, not a permanent resolution. If the conflict escalates further, or if oil prices remain elevated for a sustained period, markets could face a more challenging environment. The parallel investors should have in mind is 2022, when a combination of rising energy prices, persistent inflation, and central bank tightening produced a prolonged bear market across both equities and bonds.
The most damaging scenario would be a return of stagflation, slower growth alongside rising inflation, leaving central banks with limited ability to support markets. We don’t see this as the base case, but it warrants respect.
This is why it is so important that your portfolio positioning, whether you are a conservative or aggressive investor, aligns with your personal risk tolerance and investment time frame. The investors who navigated 2022 best were those who were appropriately positioned ahead of the downturn, not those who tried to adjust mid-crisis. This allows investors to play offence not defence when market volatility periodically arrives.
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This article is for general information purposes only and does not constitute financial advice or take into account your individual circumstances. If you’ve got questions about your investment, our friendly team are here to help. You can drop us an email, call us on 0508 347 437, or chat with us online.
