Market Brief: Iran Escalation and Market Volatility

Savvy Wealth Investment Management | March 5, 2026

Executive Summary

The recent escalation in Iran has introduced a new source of geopolitical uncertainty into global markets. While the headlines can be unsettling, history shows us that events like this typically affect markets through volatility rather than lasting structural change.

At this stage, the most important transmission channel to the global economy is via the energy markets. We’re closely watching oil prices and the potential for disruption to energy supply routes in the Middle East, particularly the Strait of Hormuz, through which roughly 20% of global oil supply passes. In our view, sustained increases in energy prices could influence inflation (here at home and abroad) and, in turn, the path of central bank policy.

For now, the situation bears monitoring, but it does not fundamentally change our view of the broader investment landscape.

What History Tells Us

While geopolitical events often dominate headlines, the historical record shows that their market impact tends to be short-lived.

Research examining dozens of geopolitical events since World War II shows a consistent pattern: markets often experience a short-term increase in volatility, but equity performance over the following year has typically been resilient.

One study analyzing more than 40 geopolitical events since 1941 found that the S&P 500 declined modestly in the immediate aftermath, averaging roughly -0.9% over the following month, but markets were typically higher six months later, with average gains of about +3.4%.

Similarly, research examining military conflicts since WWII shows equities were higher 12 months later roughly 70%–75% of the time.

Other institutional studies, including work by Invesco, reach similar conclusions: periods of elevated geopolitical risk can create short-term volatility, but they have historically not derailed longer-term equity market trends.

This pattern reflects an important distinction. Markets react quickly to uncertainty, but long-term equity performance is ultimately driven more by economic growth, corporate earnings, and monetary policy than by geopolitical headlines.

Key Considerations Today

Avoid reacting to geopolitical headlines with large portfolio changes
Geopolitical events often generate unsettling headlines and short-term market swings, but history suggests they rarely alter long-term market trajectories. Maintaining a disciplined investment approach is typically more effective than reacting to rapidly evolving news flow.

Monitor energy prices and the implications for inflation and central bank policy
The most direct transmission channel from this conflict to the global economy is through energy markets. Sustained increases in oil prices could push inflation higher and potentially influence the timing of future central bank policy decisions.

Expect periods of volatility and use them constructively
Geopolitical shocks frequently lead to temporary spikes in market volatility as investors reassess risk. These periods of dislocation are a normal part of long-term investing and can sometimes create opportunities to rebalance portfolios back toward strategic allocations.

Watch the duration and scope of the conflict
Markets typically respond more to prolonged disruptions than to the initial geopolitical shock. Key risks we are monitoring include potential disruptions to energy supply routes (particularly shipping through the Strait of Hormuz) regional escalation, and sustained inflationary pressure driven by higher energy prices.

Maintain diversification and be aware of potential sector shifts
Diversification across asset classes, regions, and sectors remains one of the most effective ways to navigate uncertainty. If energy prices remain elevated, market leadership may shift, with energy and commodity-linked sectors potentially benefiting while energy-sensitive sectors (e.g., transports, airlines, industrials) face pressure.

Bottom Line

Geopolitical events can create unsettling headlines and temporary market volatility, but history suggests they rarely alter the long-term trajectory of financial markets.

For now, the key variable to watch is energy supply and its implications for inflation, rather than geopolitical headlines themselves.

Periods like this often reinforce the value of staying disciplined, diversified, and focused on long-term investment objectives.