Geopolitical Shocks: Understanding Market Resilience and Risks

In today's fast-paced news cycle, it is natural to feel that the latest global conflict poses an immediate and permanent threat to your financial security. At Mountain Legacy, we prioritize data-driven perspective over reactive headlines.

While geopolitical events often trigger short-term market "wobbles" and spikes in volatility, historical data spanning over 80 years suggests that broad equity markets have typically demonstrated resilience over the long term. However, it is critical to understand that past performance does not guarantee future results, and every geopolitical crisis presents unique risks.

Historical Patterns of Volatility and Recovery

An analysis of 28 major geopolitical events since 1945 reveals that while markets may react sharply in the immediate aftermath, they do not follow a uniform pattern of decline. Consider these historical benchmarks for context:

• 9/11 Attacks (2001): After a one-week closure, the S&P 500 fell roughly 12% upon reopening. However, the index fully recovered those specific losses within approximately 30 trading days.
• The Gulf War (1990–1991): The S&P 500 saw a significant drop of roughly 17% during the buildup of tensions. Once the conflict began and uncertainty decreased, the market began a strong rally.
• The Cuban Missile Crisis (1962): During this period of peak historical tension, the S&P 500 fell about 6%, yet saw a full recovery within several weeks.
• Russia–Ukraine War (2022–Present): Initial reactions included sharp volatility and energy price spikes. While global equities saw an initial flight to safety, many markets eventually refocus on broader economic fundamentals like growth and inflation.

Note on safe havens: During these periods of strife, research indicates that the US dollar and gold have consistently tended to strengthen in the year following a major event, often serving as a reassuring source of value for investors.

Why Markets Often Stabilize

It may seem counterintuitive for markets to remain buoyant during global unrest. Historically, this resilience is driven by several factors:

1. Markets Hate Uncertainty More Than Conflict: Investors tend to price in "known" risks quickly. Once a situation becomes more predictable, markets often stabilize even if the news remains challenging.
2. Economic Fundamentals Prevail: Over the long term, factors such as corporate earnings, interest rates, and national growth tend to have a more profound impact on portfolio performance than geopolitical noise.
3. The Role of Diversification: While local markets near a conflict may suffer severe impacts, a globally diversified portfolio is specifically designed to absorb such shocks by spreading risk across different regions and asset classes.
4. Policy Interventions: Central banks and governments frequently implement measures to stabilize economic conditions and maintain market liquidity during significant crises.

A Balanced View for Your Strategy

While the "Big Picture" pattern is one of resilience, it is important to acknowledge the exceptions. Geopolitical events can sometimes accelerate pre-existing negative trends or trigger prolonged downturns if they cause systemic economic shocks, such as the energy crisis of the 1970s.

The Bottom Line: A well-constructed, long-term financial plan is built with the assumption that geopolitical uncertainty will occur. Attempting to "time" the market based on headlines is rarely successful and often increases your risk profile.

Review Your Resilience

Is your portfolio properly diversified to weather the next global shock? We invite you to schedule a consultation to ensure your plan remains aligned with your goals, regardless of the headlines.

Schedule a Complimentary Strategy Session

Important Disclosures

Investing involves risk, including the potential loss of principal. Diversification does not guarantee a profit or protect against loss in a declining market. Past performance is not indicative of future results. Historical market recoveries are provided for context only and do not ensure that future geopolitical events will follow a similar pattern. Economic and geopolitical conditions are subject to rapid change, and the impact on any specific investment can vary significantly.