How the stock market typically reacts to geopolitical conflicts

Tensions are simmering between the U.S. and Iran. Yet, the stock market may just breeze past any worries about potential military conflict. The New York Times and CNN reported, citing sources, that the U.S. may take military action against Iran as soon as this weekend. President Donald Trump has not indicated how the U.S. will proceed, but Vice President JD Vance said this week that strikes are possible after Iran ignored key U.S. demands regarding the Islamic Republic’s nuclear program. Crude oil prices are higher this week, with traders pricing in potential disruptions in the energy complex should the conflict escalate. West Texas Intermediate futures are up about 6% week to date, trading above $66 per barrel. Brent futures are also ahead approximately 6% for the week. Major stock benchmarks, however, have cruised higher lately. The S & P 500 is up about 0.6% week to date, while the Dow Jones Industrial Average and Nasdaq Composite have climbed 0.3% and 0.9%, respectively. Maybe that’s because, for stocks, geopolitical conflicts have seldom proved a headwind. Barclays’ trading desk looked at how the S & P 500 fared the day before, the day of and the day after a geopolitical event. On average, the S & P 500 is unchanged the day after such an event. The day of and the day before, it actually averages a slight gain, based on figures going back to September 1980. Still, it’s not as though stocks are cheap ahead of any possible conflict. The S & P 500 is less than 2% below record levels, meaning investors this time may use any military escalation to pare back positions in equities.