S&P 500 Holds Steady Amid Israel-Iran Tensions — History Points to Resilience

The S&P 500 has remained remarkably stable since the Israel-Iran conflict erupted, slipping just 1% as of Tuesday’s close. And if history is any guide, any market dip may prove short-lived.

Deutsche Bank Research analyzed 32 past geopolitical events and found a consistent pattern: markets tend to sell off quickly—but recover just as fast. “The escalation in the Middle East highlights the typical playbook for geopolitical shocks—sharp equity pullbacks followed by surprisingly swift rebounds,” wrote strategists Parag Thatte and Binky Chadha.

Historically, the S&P 500 drops around 6% over three weeks but recovers fully within the next three weeks. The median recovery includes a 15% rally from the bottom over the following 12 months.

Some shocks, however, have left a deeper mark. The 1973 oil embargo triggered by the Israel-Arab War led to a 15% plunge and took nearly six years—1,475 trading days—for the index to recover. Other major selloffs followed events like:

• Hitler’s annexation of Czechoslovakia (1939, -21%)
• Nazi invasion of France (1940, -26%)
• Pearl Harbor (1941), Korean War (1950), and 9/11 (2001), each dropping the index over 10%

Yet rebounds can also be powerful. The S&P soared 42% in the year following the Israel-Hamas conflict in 2023, and over 30% after the Korean War, Iraq War (2003), and Cuban Missile Crisis (1962).

Still, risks remain. Deutsche’s Jim Reid warns that a more severe market reaction could come if the U.S. is drawn into the conflict, Iranian oil facilities are attacked, or the Strait of Hormuz—vital for 20% of global oil flows—is blocked.

While it’s too early to assess how the Israel-Iran conflict will rank among historic market events, past data shows the S&P typically weathers geopolitical turmoil. But as the 1970s oil crisis reminds investors, some shocks can leave lasting scars.