A Market That Was Already a House of Cards
The war itself was not the only cause of the recent market decline. The market had already become unstable due to rising volatility, sector rotation, and macroeconomic uncertainty. The conflict simply became the trigger that caused investors to sell.
The market was showing signs of instability before the U.S. began signaling intentions of war with Iran. Several sources of volatility had been building for months. Investors were dealing with concerns around tariffs, the back and forth of government shutdowns, and ongoing fears around the technology and software sector.
Another signal came from the volatility index. The VIX had been rising and falling sharply, reflecting a market that was becoming increasingly nervous. At the same time, we saw noticeable sector rotation as investors moved money between industries searching for safety. When that kind of behavior becomes common, it is often a sign that confidence in the broader market is weakening.
Taken together, those signals made the environment feel fragile. It started to resemble a house of cards; slowly being built higher and higher, each new concern adding another layer of instability.
This level of volatility suggested that the market was becoming vulnerable to a sudden shock. Everything might look stable from the outside, but all it takes is one event to knock the entire structure over.
That is exactly what happened when the bombs started falling on Tehran.
The conflict was not necessarily the only risk facing markets, but it was the event that finally tipped the balance.
Why War Often Triggers Market Selloffs
Markets dislike uncertainty more than anything else. Military conflict introduces uncertainty on several levels at once.
Investors begin to worry about energy prices, international trade, political stability, and economic policy responses. Even if the long-term impact is unclear, the immediate reaction is often the same.
Fear.
There is an old adage in investing that explains this behavior clearly. Volatility creates fear, and fear leads to selling.
When investors feel uncertain, many choose to reduce risk quickly. That can lead to sharp declines across the market, even in companies that are fundamentally strong.
In this situation, the war acted as the final push that triggered a broader sell-off.
Historical Market Reactions to Major Conflicts
History shows that wars rarely cause market crashes on their own. More often they act as the final trigger that pushes an already fragile market into a correction.
| Event | Initial S&P 500 Reaction | Approximate Recovery Timeline | Key Takeaway |
| Gulf War (1990) | Market fell about 17% from July to October 1990 during buildup to war | Recovered within 5–6 months after military action began | Markets often decline during uncertainty but recover once conflict direction becomes clear |
| Iraq War (2003) | Market declined roughly 14–15% in the months leading up to the invasion | Strong rally began shortly after the invasion started | Markets sometimes rise once uncertainty is resolved |
| Russian invasion of Ukraine (2022) | S&P 500 dropped about 12–13% from January to March 2022 | Partial recovery within several months, though volatility remained | Geopolitical shocks create short-term volatility |
| Middle East regional conflicts | Typically 5–10% short-term pullbacks depending on economic conditions | Recovery varies | Conflicts tend to amplify existing market stress rather than cause long-term damage |
Our Strategy in the Lead-Up to the War
The market already felt fragile, and we had been preparing for downside risk before the war even began. The volatility surrounding tariffs and policy issues sparked caution, and we were already looking toward safer positioning.
When the conflict began, it confirmed our concerns that the market might be ready for a correction.
As the news broke, we decided to raise cash by selling a meaningful portion of our positions.
This was not a permanent exit from the market, instead it was a strategic move to protect capital and prepare for better entry points if the market continued to decline.
Waiting for the Market to Reset
As of now, our strategy is simple. We are waiting for the market to decline roughly ten percent from recent S&P 500 highs, before beginning to buy back in.
That type of correction is in line with historical trends, and can create opportunities for disciplined investors.
When the time comes, there are two possible paths.
One option is to buy back into the S&P 500 itself through a broad market fund. The other option is to look closely at individual blue-chip companies that may have fallen alongside the market but remain fundamentally strong. The optimal strategy will likely be a combination of both.
Sometimes the best opportunities appear when strong companies are temporarily pulled down by broader market fear.
Typical Market Pullbacks During Geopolitical Shocks
| Event Type | Typical S&P 500 Pullback | Average Recovery Pattern | Investor Insight |
| Military conflicts or wars | 5% to 15% | Often stabilizes within months if economic fundamentals remain strong | Fear driven selling creates temporary declines |
| Major geopolitical crises | 8% to 20% | Recovery varies depending on the broader economy | Markets react quickly to uncertainty |
| Policy shocks or global tensions | 4% to 12% | Stabilization once policy direction becomes clearer | Volatility spikes but long-term trend often resumes |
| Broad geopolitical uncertainty | Around 10% corrections common | Historically followed by market rebounds | Corrections often create entry opportunities |
Why These Moments Can Create Opportunity
Periods of uncertainty are uncomfortable for investors, but they often create some of the best opportunities in the market.
When fear drives widespread selling, strong companies can often become undervalued in the short term. Investors who are prepared with cash and a clear strategy can take advantage of these moments when they appear.
The key is not reacting emotionally to the headlines. Instead, it is about understanding when volatility creates opportunity and having the patience to wait for the right entry points.
Preparing for Volatility Before It Happens
One of the most important lessons for investors is that volatility rarely appears without warning. In this case, the signs were already present through policy concerns, economic uncertainty, and sector specific fears.
The Iran war simply became the event that pushed the market from fragile to falling.
Investors who pay attention to these warning signs can prepare in advance by adjusting risk levels, raising some cash, or identifying the price levels where they would be comfortable buying again.
Preparation is often the difference between reacting to the market and taking advantage of it.
Build a Strategy for Uncertain Markets
Market volatility is inevitable, especially when global events add new layers of uncertainty. What matters most is having a clear strategy before those moments arrive.
At Michael Leslie Investments, we help investors prepare for market shifts, identify opportunities during corrections, and build portfolios designed for long-term growth.
If you want guidance navigating volatile markets and positioning your investments for the future, contact Michael Leslie Investments today.
