Markets and Geopolitical Shocks: A Two-Lens Look at Risk and Resilience

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Whenever the world feels like it’s on edge — wars, attacks, retaliation, or diplomatic breakdowns — markets tend to respond swiftly. Fear takes over headlines, investors grow cautious, and volatility often spikes.

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But if you zoom out, and analyze how markets actually behave across different time frames, a far more stable and predictable pattern emerges. That’s why in this update, we’re analyzing geopolitical market reactions through two distinct lenses:

1. Immediate shock and recovery timelines (based on daily drawdowns and time to recover)
2. Medium- and long-term investment returns (1, 3, 6, and 12 months after the event)

By breaking these out separately, you get a clearer picture of why short-term headlines rarely justify long-term portfolio overreactions.

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Lens 1: Short-Term Market Impact — What Happens in the Days and Weeks After a Geopolitical Shock?

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The first chart (from LPL Research and S&P Dow Jones Indices) looks at over 20 major geopolitical events going back to 1941, from Pearl Harbor and the Cuban Missile Crisis to more recent missile strikes and terror attacks.

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Historical averages across major geopolitical shocks:

1. The average one-day market drop is –1.2%
2. The average total drawdown (peak to trough) is –5.0%
3. It takes about 22 days on average to reach the market bottom
4. Markets typically fully recover within 47 calendar days

Examples:

1. 9/11 attacks: –11.6% total decline, recovered in 31 days
2. Saudi Aramco drone strike (2019): –4.9%, recovered in 41 days
3. Boston Marathon bombing (2013): –2.3%, recovered in 16 days

Takeaway: Even significant events tend to lead to quick market recoveries, not prolonged downturns.

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Here’s what the data shows:

Key takeaway: Even when geopolitical events shock markets, the reaction is typically limited and short-lived. A 5% drop and full recovery in under two months is well within the range of normal market behavior.

Some examples:

1. After the Boston Marathon bombing in 2013, the S&P dropped just –2.3%, and recovered within 16 days.
2. During the Saudi Aramco drone strike in 2019, markets dipped –4.9%, but fully rebounded in just 41 days.
3. Even the 9/11 attacks, one of the most dramatic shocks in modern history, saw a total market decline of –11.6%, with a recovery in only 31 days.

Lens 2: Forward Returns — What Happens 3, 6, and 12 Months Later?

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Looking at S&P 500 returns after major geopolitical or military events:

1. 1 month later: median return of +2.0%; market is higher 48% of the time
2. 3 months later: median return of +4.0%; market is higher 64% of the time
3. 6 months later: median return of +6.0%; market is higher 60% of the time
4. 12 months later: median return of +8.4%; market is higher 68% of the time

Examples:

1. Cuban Missile Crisis (1962): +27.8% one year later
2. Six-Day War (1967): +13.5% over the next year
3. Iraq invades Kuwait (1990): +10.1% after 12 months
4. Iran airstrike (2020): +14.4% one-year return

Here’s what the data shows:

So while the initial reaction might be negative, markets are higher 68% of the time one year later — with a median return of +8.4% after 12 months. That’s roughly in line with long-term average market returns, despite coming off the heels of events that, at the time, felt like global crises.

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Even when events are severe enough to dominate global headlines, markets tend to recover and resume their long-term trend within a year — especially when the underlying economic fundamentals are strong.

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Today’s Market in Context

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The recent military exchange between Israel and Iran has understandably created concern, especially layered on top of the ongoing Gaza conflict and strained U.S.–Iran relations. There’s also the broader question of whether this conflict could spread into something more systemic — either across the Middle East or in terms of global markets.

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So far, here’s what we’ve observed:

1. Oil prices jumped sharply (Brent crude +7%), but this move simply took prices back to levels seen in April. Still, oil can be a transmission mechanism that impacts inflation and global economic sentiment.
2. Safe-haven assets such as gold, the Japanese yen, the Swiss franc, and the U.S. dollar have strengthened — a textbook move in periods of geopolitical fear.
3. Bond markets, interestingly, saw rising Treasury yields — indicating investors aren’t yet flooding into bonds like they might in a full-fledged panic.
4. Equity markets pulled back slightly, but not in any way that’s inconsistent with past historical patterns.

This reaction so far fits within the historical framework presented in both charts: a modest, measured response that may look like volatility in the moment, but doesn’t typically translate into long-term damage.

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How We Use This Data to Guide Portfolio Strategy

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At BRIM, we act on evidence and do not trade on headlines. The data above reinforces what we already practice in our investment philosophy:

1. Stay invested through uncertainty. The greatest risk in these moments is reacting emotionally and missing the rebound.
2. Volatility ≠ risk. Not all downturns are structural. Short-term drops in response to external events are part of the game, not a reason to exit the field.
3. Look for opportunity. Historically, these windows have created moments of dislocation that can benefit active, high-conviction strategies — especially in innovation-driven sectors where volatility often misprices growth potential.

Final Thoughts

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Geopolitical events are serious, and we never minimize the human impact. But from an investment standpoint, history gives us a clear blueprint for how markets tend to respond:

1. Short-term drawdowns average –5% and recover in under 2 months
2. Long-term gains are common — with the S&P 500 higher 68% of the time after one year later, with a median return of +8.4%.

So when fear rises and the headlines scream, we lean into what works: disciplined allocation, staying fully invested, and seeking asymmetric upside through smart portfolio design.

We’ll continue monitoring developments, and if any major structural risks emerge, we’ll adjust. But as of now, this moment fits well within the historical framework of resilience, not crisis.