President Trump takes the stage at the White House to talk about the war with Iran, giving a speech that sent stock markets crashing. (Alex Brandon/Associated Press)
Since the end of February, the three major indices of the stock market – Standard & Poor’s 500, Dow Jones industrials and the Nasdaq composite – have fallen by a few percent.
One may ask: Is that all? Does the market not know that there is a war?
Yes, the stock market knows. It doesn’t matter as much as you might think it should.
It seems that this process has to be worse than this considering everything that is going on in the world.
Ben Carlson
History tells us that we should not be so surprised. Although geopolitical events such as the initiation of military actions tend to disrupt the securities markets in the short term, investors end up turning to a long-term view, assuming that these conflicts will eventually be resolved and the door is opened again to bullish sentiment.
The great recessions of the past, such as the crashes of 1929, 2000 and 2008, were caused less by external events than by business and investment personnel, such as threats to the structure of the economy – the first excess, the second dot-com crash and the third housing crash. These were real risks, not temporary setbacks.
The Iran war has not yet taken on the color of an economic threat, nor is it likely to end if the oil supply disruption caused by the closure of the Strait of Hormuz continues or tightens or the Middle East’s electrical infrastructure sustains further damage.
Indeed, two of the worst recent periods are linked to oil – the Arab oil embargo of 1973, after the Yom Kippur War, which sent the S&P 500 down more than 16% in six weeks, and Iraq’s seizure of Kuwait’s oil fields in 1990, which caused the S&P to drop more than 16% in two months.
Let’s examine the state of the stock market since the US attacks on Iran began on February 28, and then put it in the state of market behavior after other major events, since the beginning of World War II.
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From January 28 to Thursday’s close, the S&P lost 4.31%, the Dow, 5.05% and the Nasdaq, 3.57%. That decline feels bad, given that it happened in a short period of about five weeks. But in the grand scheme of things, they underestimate themselves.
“It looks like this recession should be worse given everything else going on in the world,” Ben Carlson of Ritholtz Wealth Management wrote last week. But Carlson noted that 5% drawdowns are common, in good times and bad — only three years since 1990 have gone without one.
There were two in 2023, 2024 and 2025, all of which produced double-digit S&Ps. None, of course, came close to the 10% pullback known as a correction, which by Carlson’s calculations occurs on average every 1.8 years.
The recent losses came with the stock market continuing to hit historic highs. This year, the S&P’s earnings multiple is now 30x, above its historical average of less than 20x. That alone should have investors looking for a change or correction.
When similar events occur during bull markets, external events are often the cause rather than the cause. Traders look for reasons to take profits, even though the reasons may not be related to market action.
To put things in perspective, let’s examine how the stock market has responded to major world events in the past. (Thanks to Ryan Detrick of the financial advisory firm Carson Group for compiling these statistics.)
The attack on Pearl Harbor of Dec. 7, 1941, sent the S&P down 11% over the next three months – but one year later the market was up 4.3%. One month after Richard Nixon resigned on Aug. 9, 1974, the market was down 14.4%; a year later it was up 6.4%. The market completely ignored the Cuban missile crisis, the Kennedy assassination, the Hamas attack on Israel in Oct. 7, 2023, and Russia’s 2014 annexation of Crimea and its 2022 invasion of Ukraine; none is associated with a market decline in the following month.
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Even when events preceded a market downturn, stocks often recovered within weeks or months. North Korea’s invasion of South Korea in 1950, starting the Korean War, dropped the market by 12.9% in the following two weeks, but as Kelly Bogdanova of RBC Wealth Management documents, it made a loss in the following 56 trading days. Similarly, Russia’s invasion of Ukraine in February 2022 was blamed for a 7.4% drop in the following two weeks, but the market broke even 27 trading days later.
Bogdanova notes that after the 1990 invasion of Kuwait, which sent the market down 16% in seven weeks, the market didn’t break even for another four months. But that was talking about oil.
The current market environment may be unique, because it is in the hands of one careless individual. As the late Michael Metz of Oppenheimer & Co. he taught me, the stock market often rises during economic growth and recession, as long as investors know where things stand.
What they hate is uncertainty, and no one has as much fun pushing uncertainty until it screams for mercy as Trump. Consider how the market was affected by his announcement of “Liberty Day” rates, which is a false security that occurred on April 2, 2025, thus marking its annual Thursday.
Strong rates were announced, corrected, partially withdrawn, reversed, etc., etc., until investors became frustrated as they went along. The Supreme Court finally put a stop to the shenanigans on February 20.
One month after the initial announcement, investors still didn’t know what to make of it. The S&P was almost flat, the Dow lost 2.15% and the Nasdaq rose 2.1%. Since then, investors have learned enough about Trump’s decision-making to ignore the conversation. (This is a TACO trade, for “Trump Always Chickens Out,” in action.) As of Thursday, the S&P had gained 13.7% since Independence Day, the Dow was up 9.1% and the Nasdaq was up 19.3%.
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The Iran war is driving the whip itself. The market is moving up and down depending on whether investors buy into Trump’s optimism or grow pessimistic about the lack of an end in sight, a judgment that can change by the minute. But it’s still in the tight 3 to 5% range.
The latest week provides a good comparison: Tuesday saw shares turn in their best day in months, with the Dow gaining 1,125 points, or 2.49%, and other indices roughly matching its performance.
But on Thursday, stock index futures fell after Trump spoke to the nation, perhaps out of frustration that he didn’t give a deadline or show that he knows what he’s doing. However investors did not show the same concern once the trade started, sending the indices into a sort of fugue. The S&P gained 7.37 points, or 0.11%, the Dow lost 61.07 (0.13%) and the Nasdaq gained 38.23 points (0.18%), all a fraction of what they have been in recent weeks. Business premises occupied.
It is possible, of course, that the market will be awakened from its slumber by a major development. Stop fighting, say, or something bad. Or that the war on Iran will move into a new phase that makes it more like the oil embargoes of the past than a temporary disruption of the status quo. We won’t know until it happens.
Until then, the typical investor’s choice is between running everything in cash, or hitching a ride.
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