What Do Hostilities With Iran Mean For Investors?

The financial world is still reeling from the aftershocks of the U.S. military’s strike on Qasem Soleimani. In the near-term, stocks dropped, and oil surged. That’s to be expected.

I must caution investors to resist the urge to invest with their emotions, especially fear. I won’t venture a prediction of what will happen, and I’m wary of anyone who tries.

Let me be clear: There’s no reason to sell out of this market due to Iran. As long as you have a diversified portfolio of sound stocks, then you should keep your wits about you. Remember that the fundamentals of the U.S. economy are still sound. Unemployment and inflation are low.

Never Invest by Fear

I will, however, touch on a few truths about the markets and investing. The first reaction is almost always wrong. In fact, stock prices have already stabilized.

The second is that dire predictions often get the most attention, and they’re almost always wrong. (Note that I said almost always.)

I even have evidence. Jeffrey Kleintop, the Chief Global Investment Strategist at Charles Schwab, posted a fascinating chart (see here). It details the market’s near-term reaction following U.S. military strikes going back more than 25 years. (I had forgotten there had been so many.)

Except for a bump up in the price of oil, the market largely takes these actions in stride, although I recognize that this latest strike could be more consequential.

We also have to remember that the stock market is not a barometer of world political stability. Stocks are focused on earnings. International events hold more sway over bond and currency markets, plus selected commodities.

We should keep in mind that the U.S. is no longer in the grip of the oil-producing nations like it used to be. A few decades ago, OPEC could easily trip us up by making production cuts. That’s not true anymore. Even Saudi Arabia is trying to diversify its economy. I’ll add that since its post-IPO peak, Saudi Aramco has lost $200 billion.

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Disclosure: None.

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