President Donald Trump said he expected a bear market and oil at $200 a barrel from the conflict with Iran, but stocks have proven surprisingly resilient.
U.S. stocks have largely shrugged off the conflict with Iran, with President Donald Trump expressing surprise Tuesday that the Dow Jones Industrial Average hadn't fallen by 20 percent as he had anticipated.
"Look at that S&P. The numbers are what they were when we started this whole thing. I thought they'd be down 20% or down a very substantial amount," Trump said in a CNBC interview. "I was surprised. I thought it would be down much more, and I thought the oil would be much higher."
The Dow fell about 10 percent from mid-February to late March but has since recovered around two-thirds of that decline, closing Monday near 49,440. While Brent crude jumped over 30 percent to nearly $95 a barrel, it remained far below the $200 level Trump feared. The U.S. 10-year Treasury yield has remained stable, indicating bond investors are not yet pricing in significant inflation risk.
The market’s rapid snapback highlights a consistent pattern following geopolitical shocks, where initial sell-offs are often short-lived. With a fragile ceasefire nearing its end, investor attention is now fixed on potential peace talks in Pakistan, which could determine if the recent market recovery can hold.
History Shows Geopolitical Dips Are Often Brief
The market's reaction to the Iran conflict is not an anomaly but rather a textbook example of how equities behave during geopolitical crises. Historically, such events trigger sharp, fear-driven sell-offs that recover quickly once the initial shock subsides and a resolution appears possible.
According to data from LPL Financial and American Century, the average market correction driven by a geopolitical shock is around 7 percent, with a recovery time of approximately one to two months. This is significantly faster than the average pullback, which takes about three months to recover from a similar decline.
Recent examples support this pattern:
- 9/11 Terrorist Attacks: Stocks fell 12 percent but recovered in less than two months.
- 2003 Iraq War: A 15 percent drop was erased in under two months.
- Russia's Invasion of Ukraine: The market dropped 7 percent and recovered in about a month.
The current 10 percent drawdown and subsequent recovery in the Dow are right on schedule with these historical precedents, reinforcing the view for many long-term investors that selling into such events can be more damaging than riding out the volatility.
Ceasefire Hopes and Oil Volatility
The market's rebound was primarily fueled by a two-week ceasefire that began on April 8 and hopes that a long-term resolution could be reached. U.S. and Iranian officials have signaled they may hold a new round of talks in Islamabad, Pakistan, just as the truce is set to expire.
However, the situation remains tense. The conflict, which began after U.S. and Israeli strikes on Iran, led to a blockade of the Strait of Hormuz, a critical chokepoint for global energy supplies. Nearly 20 percent of the world’s oil and gas shipments pass through the strait, and its closure sent oil prices soaring. Brent crude, the international benchmark, was trading near $95 a barrel on Tuesday.
President Trump has maintained that the blockade will continue until a deal is finalized, and he has warned he is unlikely to extend the truce without an agreement. This has kept energy markets on edge and raised concerns about inflation, with UK consumer confidence falling to a three-year low on fears of higher fuel and utility bills.
This article is for informational purposes only and does not constitute investment advice.
