The S&P 500 Has Barely Moved Since Israel-Iran Conflict Began — History Suggests a Quick Recovery Is Possible
Despite the ongoing conflict between Israel and Iran, the S&P 500 has held relatively steady, down just 1% as of Tuesday’s close. While geopolitical shocks often spark investor anxiety, history shows the U.S. stock market tends to rebound quickly.
Deutsche Bank Research analyzed 32 past geopolitical events and found that while equities often experience sharp, short-term pullbacks, they typically recover swiftly. “The typical pattern is for the S&P 500 to decline about 6% over three weeks, then regain those losses over the next three weeks,” strategists Parag Thatte and Binky Chadha wrote in a recent note.
The index’s resilience isn’t new. Data stretching back to the index’s predecessor before 1957 shows only two geopolitical events have triggered drops of more than 20%: Hitler’s annexation of Czechoslovakia in 1939 and the Nazi invasion of France in 1940. Other notable drops include:
- 21% during the 1973 Israel-Arab War and resulting oil embargo
- 15% after the First Gulf War began in 1990
- 10%+ during the Korean War, Pearl Harbor, 9/11 attacks, and Iranian hostage crisis
Taking the median case, the S&P typically falls 6% over 17 trading days, then fully rebounds within 16 trading days. Over the following year, it often rallies nearly 15% from its trough.
Still, not every recovery is quick. Following the 1973 oil crisis, it took nearly six years—or 1,475 trading days—for the S&P to return to its prior high. Similarly, the market posted steep one-year declines after events like the construction of the Berlin Wall (-15%) and Nixon’s impeachment proceedings (-13%).
On the flip side, the index has sometimes posted explosive gains after turmoil. It surged about 42% in the year following the 2023 Israel-Hamas conflict, and more than 30% after the 1950 Korean War, the 2003 Iraq War, and the 1962 Cuban Missile Crisis.
Deutsche’s Jim Reid notes that a deeper market selloff could occur if the conflict escalates—particularly if the U.S. gets directly involved, Iranian oil exports are disrupted, or the Strait of Hormuz is closed, which carries 20% of global daily oil trade.
While it’s too early to gauge the long-term market impact of the Israel-Iran tensions, history suggests that even sharp drops tend to be short-lived. However, investors should remain aware that some geopolitical shocks—especially those involving oil—can weigh on markets for years.
