The U.S.-Israeli joint operation in Iran has now been underway for several weeks, and after an onslaught of news coverage and hyperbolic commentary, many investors are wondering what it means for the markets.
The truth is, not even the highest-level experts know exactly where this conflict is headed. By the time this newsletter is finished and reaches your inbox, the situation could easily have escalated further—or begun to de-escalate. Even so, we can still discuss what this uncertainty may mean for your investment portfolio.
One helpful way to think about today’s environment is to revisit a newsletter I sent almost exactly four years ago titled Ukraine War Market Impact Update. At that time, Russia had invaded Ukraine just a few weeks earlier.
I’ll revisit the key points from that newsletter and show how they apply to the current conflict:
1. Market Perspective
2022: In 2022, while the market had declined on news of the war in Ukraine, it was still up significantly from two years earlier.
Today: While the market, as measured by the S&P 500, is down about 5% since the start of the Iran campaign, it is still up roughly 62% since the beginning of the Ukraine war in 2022.
2. Warren Buffett’s war advice:
In 2022, I wrote: “Warren Buffett once said to never hold cash during a war. Considering he purchased his first stock in 1942, I consider him to be an authority on the subject. Buffett explains how times of war are also times of high inflation, and you are often better off in the long run owning shares in productive companies rather than sitting in cash and losing purchasing power. (Of course, this does not apply to your short-term reserves, which should always be held in cash.)”
That same principle still applies today.
3. Oil Disruption
2022: In 2022, I wrote: “Energy prices are likely to wane later in the year as production elsewhere increases to replace lost Russian output.” In fact, oil prices moved so quickly that they fell from $130 per barrel to around $90 while I was still writing that newsletter.
Today: Similar to 2022, higher oil prices tend to encourage increased production elsewhere. However, unlike 2022, a reopening, or signs of a reopening, of the Strait of Hormuz could trigger a rapid decline in oil prices. As of this writing, oil is around $88 per barrel.
While these conflicts are different, the market lessons are strikingly similar. Both disrupted oil supply, triggered an immediate market decline, added inflationary pressure through higher energy and chemical costs, and unsettled investors. Yet despite the Ukraine war remaining unresolved, the market has returned 62% since its outset. While future returns can never be guaranteed, history is a useful reminder that investors have often been rewarded for remaining calm, disciplined, and focused on the long term.
If you have any questions about your investments, please don’t hesitate to hit reply and send me an email.
*market data from NYMEX, NYSE