Andriy Onufriyenko | Moment | fake images
The escalation of war in the Middle East shook the stock market on Tuesday, a reaction that history suggests is common after a global shock but often does not last.
While the market recovered on Wednesday morning, the Standard & Poor’s 500 Indexa broad measure of how U.S. company stocks are faring, closed down 0.94% on Tuesday. He Dow Jones Industrial Average lost 0.83%, and the technology sector Nasdaq Composite Index lost 1.02%. However, earlier in the day, all three fell by at least 2.5%.
The declines earlier in the day were largely due to concerns about disruptions to global trade, including the flow of oil, until President Donald Trump’s announcement that the United States would ease the passage of ships through the Strait of Hormuz, a key shipping route.
History suggests that stock market volatility is normal.
The S&P’s average weekly decline after an initial geopolitical shock is 1.09%, according to Stock Trader’s Almanac analysis of 17 incidents since 1939.
The biggest gain in a week was 13.51% after Germany invaded Poland on September 1, 1939, which is generally considered the beginning of World War II. The biggest weekly loss was 17.90%, when Germany invaded France on May 10, 1940. Over the next year, after each incident, the S&P posted losses of 5.55% and 20.87%, respectively, according to the analysis.
In more recent times, the S&P gained 3.27% in the first week after Russia invaded Ukraine on February 24, 2022. However, after a year, the index was down 6.05%.
However, the economic backdrop was “much weaker” in the weeks and months after the invasion, said Jeffrey Hirsch, editor in chief of the Stock Trader’s Almanac. “It was clear that inflation was about to skyrocket.
“This time the economy appears to be on a much more stable footing,” Hirsch said.
However, “the conflict is still very early,” Hirsch said. “So far, the market is not saying it will last. I think oil would go up much more.”
Oil prices rose after the US and Israeli attack on Iran, but have since fallen.
Historically, 12 months after a new crisis, the S&P recorded an average gain of 2.92%, according to analysis by the Stock Trader’s Almanac. The biggest jump in one year was 32.2% after the Gaza War began on October 7, 2023. The biggest loss was 34.30% one year after the Arab oil embargo that began on October 19, 1973.
It is impossible to predict where the market will go from now on. He CBOE Volatility Indexwhich measures expected volatility in the S&P over the next 30 days, was around 23 on Tuesday. By comparison, in April 2025, when the market crashed due to new tariffs and the uncertainty surrounding them, the index had skyrocketed to 52.3.
Stick to your investment strategy, says expert
For investors, the volatility may be jarring, but history also shows the market recovering.
“If you have an investment strategy, stick to it,” said certified financial planner Lee Baker, founder, owner and president of Claris Financial Advisors in Atlanta, and a member of CNBC’s Council of Financial Advisors. “Don’t change it because you think, ‘Oh no, we’re going to war, this is the end, I’m going to lose all my money’ — that kind of thinking.”
For long-term investors (those who don’t need to exploit their assets for years, if not decades), financial advisors generally recommend staying put to weather any storms in the market.
Research shows that missing out on the stock market’s best days, even in a bear market, can cost investors.
For example, if you missed the market’s 10 best days over a 30-year period through 2024, your returns would have been cut in half, according to Hartford Funds. And missing the best 30 days would have reduced your returns by 83%. Additionally, the research found that 78% of the stock market’s best days occurred during a bear market (50%) or during the first two months of a bull market (28%).
However, if market volatility makes you especially nervous, financial advisors say it’s an indication that you may need to reevaluate your ability and risk tolerance. These capture how long you have until you need to start using the money you’ve invested and how well you can withstand the ups and downs that come with investing in the stock market.
“It usually involves some minor adjustments” to your portfolio, Baker said, such as going from, say, 80% stocks and 20% bonds to 75%, 70% or 60% stocks and the rest bonds.
“It’s usually not about locking in a big loss, so to speak,” Baker said. “If it’s to be able to sleep at night, it might be worth ruling out some risks.”
