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: 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.

Fed Likely to Admit Tariff-Driven Inflation Has Been Overstated, Says Tom Lee It’s Fed Day — and while markets overwhelmingly expect no change in interest rates, with futures pricing in a 98.8% probability of a hold, Fundstrat’s Tom Lee sees potential for a market-moving moment. Lee isn’t anticipating a rate cut today. But he believes the Fed may acknowledge a key shift in the data: inflation is coming in softer than expected, and the impact from tariffs has been minimal. “The Fed has cited tariff-related uncertainty as a reason to stay cautious,” Lee notes. “But recent inflation readings — including just a 0.1% monthly rise in the CPI and flat import prices — suggest that pressure just isn’t showing up.” Real-time import pricing confirms it: tariffs haven’t meaningfully passed through to consumers. And market-based inflation indicators have dropped to their lowest levels in over a year. “We think the Fed will have to recognize this,” says Lee. “And with partisan bias skewing consumer inflation surveys, markets are starting to price in a return to a more dovish Fed.” Lee remains bullish, expecting the S&P 500 to push back to record highs soon — it’s already within 3% — and he still sees 6,600 by year-end. As a bonus indicator, he points to bitcoin’s new all-time high as a sign the rally has legs.

Despite the tragedy unfolding between Israel and Iran, U.S. markets have remained surprisingly resilient. S&P 500 futures reclaimed the 6,000 mark early Monday—just 2% shy of record highs. But RBC Capital Markets’ Lori Calvasina warns that this calm may not last. Oil Spike Threatens Fed’s Inflation Outlook as Middle East Tensions Rise She outlines three ways the conflict could hit stocks: 1. Valuation Pressures Geopolitical uncertainty tends to compress price-to-earnings (P/E) ratios. Calvasina notes that national security threats, much like economic policy fears, usually lead investors to assign lower valuations. With P/E multiples already elevated, stocks are particularly vulnerable now. 2. Investor Sentiment at Risk Recent gains in market confidence—especially among investors—have helped fuel the rally. But if the conflict rattles sentiment, optimism around IPOs and dealmaking could evaporate. Corporate earnings calls have shown that even events like wildfires or flu outbreaks affect behavior. Middle East tension will likely do the same. 3. Oil Prices and Fed Policy RBC sees room for Brent crude to surge if supply is disrupted. That could reignite inflation, muddy the Fed’s rate-cut path, and pressure equities. In a stress test, RBC assumes higher PCE inflation, limited rate cuts, and steady Treasury yields. The result: S&P 500 fair value could fall to 4,800–5,200 by year-end—well below Friday’s close at 5,977. In short, while the market appears stoic now, surging oil and rising uncertainty could throw the Fed—and investors—off balance.

Why Markets Often Brush Off Geopolitical Shocks – Until They Don’t Markets were shaken after Israel struck Iran and Iran reportedly fired back. But the panic didn’t last long. U.S. stock futures bounced off session lows, oil prices retreated from sharp gains, and gold eased from its peak — all signs that investor anxiety may already be cooling. This kind of swift reaction is common. “Financial markets are incredibly quick to price in geopolitical fear — but just as quick to discount it,” says Michael Brown of Pepperstone. An April report from the International Monetary Fund (IMF) echoes that. While global markets typically react to geopolitical risk, most events leave only a modest, short-term dent. However, large-scale military conflicts tend to have a deeper, longer-lasting impact. The IMF found that average stock returns across countries drop about 1% during geopolitical flare-ups. In emerging markets, that drop averages 2.5%. And when the risk involves international military conflict, emerging market stocks can plunge by 5% in a single month. Fortunately, the report also shows that most markets begin to recover within a month — though the rebound depends on the nature and scope of the crisis. Supply chain disruptions, for example, can drive up commodity prices while dragging down equities, especially in sectors that rely heavily on energy. Some geopolitical events leave a bigger scar. The 1973 oil embargo slashed real returns for the S&P 500 by over 60% in the months that followed. Iraq’s 1990 invasion of Kuwait led to six months of negative returns as well. Still, Deutsche Bank analysts say recent history paints a more resilient picture. Their research shows that modern markets often experience quick selloffs — but also quick recoveries — in response to geopolitical events. “Once the initial fear passes, economic fundamentals take the lead again,” notes strategist Jim Reid. Their advice? “You should generally buy into geopolitical risk.” But they add a caution: With global tensions on the rise, the old playbook may not always apply.