On Tuesday, March 3, 2026, markets briefly reminded investors how quickly sentiment can change when geopolitical risk enters the picture. The S&P 500 closed with approximately a 1% decline on the day. Intraday, the index had fallen roughly 2.5% before recovering much of the drop, illustrating how rapidly markets can swing as investors process new information.

And yet, despite the dramatic headlines surrounding the Iran war, the broader picture remains measured. Even after the volatility, the S&P 500 sat only about 2% below its all-time high. A deeper drawdown could occur if the war escalates or becomes prolonged, but it also might not.

This is the nature of markets: they respond to uncertainty in uncertain ways.

Why geopolitical shocks move markets

While it’s difficult to pinpoint a single reason for recent market movements, much of the media narrative has focused on how the emerging war involving Iran could be influencing energy and inflation expectations . Specifically, there are concerns, widely discussed in reports, about possible disruptions to oil supply in the Persian Gulf. These concerns can quickly filter into energy prices and shape inflation expectations, though it’s important to recognize that these are interpretations rather than established facts.

Higher energy costs, whether driven by actual supply disruptions or by evolving expectations, can affect corporate margins, consumer spending, and forecasts for interest rate policy. Consequently, geopolitical tensions often prompt rapid market reactions as investors reassess risk, but it’s worth keeping in mind that these connections are often drawn in hindsight and may not fully explain market behavior.

Ukraine: an ongoing war, and a rising market

To put today’s volatility in perspective, consider the Russia–Ukraine war On February 24, 2022, when Russia launched its full-scale invasion of Ukraine, markets initially dropped sharply overnight. Yet by the end of the trading session, the S&P 500 closed higher at 4,288, up from 4,225 the previous day. The war remains ongoing today, entering its fifth year in 2026. Yet despite the persistence of the war,the S&P 500 has risen to 6,816 for the day ending on March 3rd. This does not mean markets ignore geopolitical risks. Instead, it highlights an important reality: markets tend to absorb and reprice new information. What initially appears catastrophic may ultimately prove less damaging than feared—or investors may begin focusing on other factors entirely.

The uncertainty premium

If markets seem unpredictable, that’s because they are. This unpredictability is not a flaw, but rather in our estimation, it is the reason stocks have historically delivered higher returns than safer assets like cash or government bonds over the long-term.* Investors demand compensation for bearing uncertainty. Economists often refer to this as the “risk premium.” And the path to earning that premium is rarely smooth. Research consistently shows that the S&P 500 experiences an average intra-year drawdown of roughly 14%, even in years that finish with positive returns. In other words, market declines are not rare, they are typical.

Every year contains volatility. What differs each year is the reason.

Sometimes it’s inflation.
Sometimes it’s interest rates.
Sometimes it’s geopolitical war.

But volatility itself is constant. This idea has been a recurring theme in our previous articles: market uncertainty is not an anomaly, it is the mechanism that drives long-term returns. In other words, this trade‑off between risk and expected reward is the risk premium. Without taking on some level of uncertainty, there would be little reason to expect higher returns over time compared to holding cash or other low‑risk assets.

Even perfect foresight can mislead

Perhaps the best illustration of market unpredictability occurred in 2020.

Imagine having perfect information at the start of that year:

  • A global pandemic would shut down large portions of the global economy
  • Governments would impose widespread lockdowns
  • Millions would lose their jobs
  • Economic output would collapse

With that knowledge, selling stocks might have seemed obvious. Yet the S&P 500 finished 2020 up over 16% for the year, closing at record highs. After falling more than 30% during March 2020, the market bottomed on March 23 and surpassed its pre-pandemic high by August 18. The lesson is powerful: markets price not just events, but expectations and responses—including monetary policy, fiscal stimulus, technological adaptation, and investor sentiment. Even perfect information about an event does not guarantee accurate predictions about market outcomes.

The forecasting trap

This unpredictability is why forecasts often struggle. In our analysis of 2025 market predictions versus reality, nearly every major Wall Street firm underestimated returns. The S&P 500 delivered a 17.72% total return,* while international equities gained more than 30%,* outperforming expectations and challenging the widely assumed dominance of U.S. stocks.

The takeaway from our analysis was simple: forecasts may provide narratives, but they rarely provide certainty.

Uncertainty is the price of admission

Every crisis feels unique:

  • a new conflict
  • a new economic shock
  • a new reason to worry

But the underlying market pattern remains consistent. Markets rise and fall as new information emerges. What appears chaotic in real time often looks completely normal in hindsight. Because of this, we believe it’s more practical for investors to focus on aligning their long‑term goals and risk tolerance with an appropriate portfolio, rather than trying to predict every market headline. The Iran war may continue to move markets in the weeks, months or years ahead. Or the market may adjust quickly and move on to the next concern.

Either outcome would be perfectly consistent with history.

 

This material is for informational and educational purposes only and is not intended as investment advice, an offer, or a solicitation to buy or sell any security. The information contained herein is based on sources believed to be reliable, but its accuracy cannot be guaranteed. *Past performance is no guarantee of future results. Market returns, index performance, and historical data cited in this commentary are for illustrative purposes only and do not represent the performance of any specific investment product. Investors cannot invest directly in an index. All examples provided are hypothetical and are not predictions of future market performance. Forward-looking statements, including discussions of potential market outcomes or geopolitical impacts, are inherently uncertain and may not occur.
Investing involves risks, including the possible loss of principal. Diversification does not ensure a profit or protect against loss in a declining market. Any references to geopolitical events or economic conditions reflect the author’s opinion as of the date of publication and may change without notice. These views should not be construed as a recommendation or guarantee of any specific investment outcome.
Consult a qualified financial professional before making any investment decisions.
The opinions contained herein are subject to change without notice.