How does it affect stocks?
After US forces bombed three key nuclear sites in Iran this weekend, so you know exactly what to expect in case stocks sell off in the coming days.
Here’s what history says:
- US stocks tend to fall at the outbreak of war… and then almost always recover quickly from these plunges.
Specifically, stocks typically drop around 10% in the days following the start of a conflict. But one year after the onset of the war, they gain, on average. In other words, if history holds true, any weakness in stocks will be short-lived.
Let’s look at some examples…
Both gulf wars, Ukrain & Russia war (2014), all showed similar pattern, where stocks fell when the war broke out. But they then rallied back again over the next year. You can see the right decision during all these events was to buy, not sell.
Now, stocks did fall for most of the year after Russia invaded Ukraine in February 2022. But remember: They were also caught up in the worst bear market since 2008. Everything plummeted that year. Fast-forward to today, and stocks have risen since the attack.
The facts are clear: The absolute worst thing you can do is panic and sell. Of course… there’s always a chance that markets won’t follow historical patterns.
What if Iran attacks the US and this war isn’t like the others?
It’s a valid concern. But that’s the nature of stock market investing. There’s always some potential disaster looming. And as a long-term investor, we get paid to accept this short-term risk.
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