Market Update - Iran Conflict
Markets were volatile last week following the US attack on Iran, and we expect this to continue in the short term.
Given the location of the conflict, oil prices have surged which not only pushes up the cost of petrol at the pump but also acts as an additional burden for businesses dependent on oil.
The unpredictability surrounding how long this may continue is adding to the uncertainty, especially when we recall the “12-day war” last year after Trump ordered attacks on Iran’s nuclear facilities. However, this latest escalation feels as though it might persist longer.
Any major “geopolitical” event such as this causes uncertainty in markets and this typically means that share prices fall as a result. As with the “Trump slump” in April last year, large stock market falls can be unsettling, but rarely do they change the medium to long term sentiment.
The investment house Liontrust stated last week:
“Geopolitical events are emotionally powerful, but they rarely change long term return paths unless they lead to sustained changes in inflation, earnings or growth. Reacting to headlines by making portfolio changes typically locks in losses rather than protects capital. As has often been said, “volatility is the price investors pay for long term returns”.
The below guide, as produced by Vangaurd, shows that when markets fall due to events such as this, historically they tend to bounce back quickly.
So, the position is the same as it was in April last year when global markets fell heavily: unless your situation has changed, the sensible course of action is to sit tight and do nothing. History shows us that markets always recover and that remaining calm during periods of turbulence can prevent costly financial mistakes.
It’s also important to remember that our client portfolios are diversified across a range of geographies, markets, and asset classes. This diversification provides a buffer against the worst of market volatility.
If you have any questions, please do not hesitate to contact your adviser
Kind Regards,
The FSWM Team