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.

Most Stocks Have Suffered Massive Losses — New Study Reveals the Harsh Reality of Long-Term Investing A new study highlights a hard truth for investors: since the mid-1980s, the typical stock has plunged more than 80% from its peak at some point in its life. Many investors imagine how different their portfolios would look if they had bought and held shares of iconic companies like Apple, Microsoft, or Nvidia from the beginning. But few realize how difficult that journey would have been. Holding through massive losses requires uncommon discipline. According to a recent report by Michael Mauboussin and Dan Callahan of Morgan Stanley Investment Management, deep drawdowns are far more common than most people think. The duo analyzed the performance of over 6,500 publicly traded U.S. companies between 1985 and 2024. “The findings are provocative and surprising,” they wrote. Here’s what they found: This aligns with research by Hendrik Bessembinder of Arizona State University, who studied more than 28,000 U.S. stocks from 1926 to 2024. His findings: just 2% of all companies generated 90% of the $79.4 trillion in net stock market wealth. Among them, six firms — Apple, Microsoft, Nvidia, Alphabet, Amazon, and ExxonMobil — contributed a combined $17.1 trillion in value. Yet even these giants experienced major setbacks. For example, Amazon’s stock dropped 95% between 1999 and 2001. On average, these six stocks had drawdowns of 80.3%, similar to the broader market sample. While dramatic recoveries are possible, they’re rare. Among companies that lost more than 95% of their value, only 16% ever climbed back to their previous highs. Still, for those that survived, the rebound could be powerful: The takeaway? Diversification matters. Even strong individual stocks can go through long, painful periods. Broad indexes like the S&P 500 have also seen significant selloffs — notably after the dot-com bubble and the 2008 financial crisis — but tend to be more resilient due to their diversified nature. The report opens with a quote from the late Charlie Munger, Warren Buffett’s longtime business partner, that puts things in perspective: “If you’re not willing to react with equanimity to a market price decline of 50% two or three times a century, you’re not fit to be a common shareholder,” Munger said in 2009. Munger, who passed away in 2023, believed enduring steep drawdowns was simply part of being a long-term investor. His advice still resonates: stay calm in the face of volatility — because often, the biggest gains come after the biggest drops.

Goldman Sachs Flags Risks Beneath Tech’s Melt-Up Rally Markets are in a holding pattern ahead of upcoming consumer price data, but tech stocks continue to dominate. The Nasdaq-100 is up 13% for the quarter, far outpacing the S&P 500’s 7.6% gain. Once-dismissed names like Nvidia, Meta, and Tesla have surged into double-digit territory. But Goldman Sachs is urging caution. In a note to clients, Peter Callahan, the firm’s technology, media, and telecom specialist, describes the Nasdaq-100 as being in “melt-up mode,” with six gains in the past seven sessions. He attributes the rally to upbeat U.S.-China trade discussions, improved economic indicators — including stronger small business sentiment — and robust earnings, notably from Taiwan Semiconductor. Goldman’s U.S. Financial Conditions Index has dropped near its yearly lows, indicating easier borrowing conditions for companies. Yet despite the positive momentum, Callahan highlights signs of instability. For example, Goldman’s TMT momentum pair trade — which bets on top tech winners while shorting laggards — has fallen 7.5% in just six days, underperforming the Nasdaq-100 by 850 basis points. Meanwhile, the Cboe Volatility Index (VIX) continues to decline, possibly understating underlying market risk. Callahan also points to weakness in recent market leaders like Netflix, Duolingo, Sea, Verisk Analytics, Spotify, Broadcom, MercadoLibre, and Carvana — all of which have posted three straight days of losses. Even traditionally stable “quality” stocks like Costco and GE are starting to underperform. He notes several emerging shifts: small-caps outpacing large-caps, cyclicals gaining over defensives, and a rebound in unprofitable tech. These trends come as markets prepare for a potential information vacuum heading into quarter-end, following key catalysts like CPI data, earnings from major TMT names, and updates on U.S.-China trade relations.