Investors should stay calm and avoid rash moves as U.S. markets swing due to the Iran war, historical patterns show recoveries always follow steep drops, advisers say.
The long-term record supports patience for those who don’t need their money soon, even as oil prices spike and stagflation risks rise.
The S&P 500 has always recouped its losses after every steep drop, including global financial crises, trade wars, and military wars, the Associated Press reports. Of course, that can take years, but anyone who moved their 401(k) investments out of stocks risked missing out on the recovery and further gains.
Will that happen again? No one can say for sure, and some things are different this time around. But many professional investors and strategists are sticking with the advice they usually give: As long as it’s money you don’t need soon, which should never be in stocks in the first place, try to be patient and ride out the stock market’s swings, tough as it is.
They gave the same counsel after President Donald Trump unveiled his global tariffs on “Liberation Day” last year, after inflation skyrocketed in 2021 and after COVID crashed the global economy in 2020. Stomaching these kinds of shocks is the price of admission to get the bigger returns that stocks can offer over the long term.
“Although volatility may feel uncomfortable, could rise from here, and possibly cause a near-term drawdown in stocks, volatility in itself tends to be brief when it reaches more extreme levels,” according to Anthony Saglimbene, chief market strategist at Ameriprise. “And, more often than not, the extreme volatility provides investors with a solid long-term entry point to buy stocks rather than sell.”
War worries and market swings
The Iran war has halted most traffic in the Strait of Hormuz, a narrow waterway off Iran’s coast where a fifth of the world’s oil sails on a typical day. That has storage tanks for crude in the region filling up because it has nowhere else to go. And that is pushing oil producers to say they’re cutting their output.
Oil on Monday briefly spiked to nearly $120 per barrel, the highest price since the summer of 2022, on worries that the production problems could last a long time. Some analysts say prices could quickly reach $150 if the strait remains closed.
A long stretch of high oil prices could push the global economy into stagflation—a combination of stagnant growth and high inflation that central banks struggle to fix.
Current market numbers and historical context
The S&P 500 is only 4.4% below its all-time high, which was set in January, as of Thursday’s close. It feels worse because of how sharply stock prices have swung recently, often hour to hour as well as day to day.
Several times since the start of the Iran war, the Dow Jones Industrial Average has plunged roughly 900 points in the morning only to erase its loss later in the day or come close to it.
This isn’t unusual. The U.S. stock market doesn’t often behave exactly like this, but it has a regular history of falling to steep losses before rising again.
The S&P 500 has seen a decline of at least 10% every year or so. Such drops are common enough that professional investors have a name for them: a “correction.” Often, experts view them as a culling of optimism that could otherwise run overboard and drive stock prices too high.
Should you sell? Advice for different investors
Selling your stocks or moving your 401(k) investments away from stocks and into bonds may offer less chance of seeing huge drops. But getting out of the market would also mean having to figure out the right time to get back in, unless you’re willing to give up any future recovery and gains.
And timing the market correctly is always difficult. Some of the best days in the U.S. stock market’s history have been