Many investors are on edge after the U.S. and Israel launched a joint attack on Iran over the weekend. Inflation risks are also on the rise, as disruptions to the Strait of Hormuz could send oil prices surging.
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Trade QQQ with leverageIn the short term, the S&P 500 (SPX) has historically reacted negatively to major geopolitical events since World War II. The benchmark index has an average one-week loss of 1.6% and an average one-month loss of 0.6%, according to Wells Fargo (WFC).
Geopolitical Events Can Create an Opportunity to Buy Stocks
However, the long-term performance of the S&P 500 tends to be positive, with the index returning 1.4% three months after such events and 6.7% one year later.
“The situation is fluid, but the playbook from the past two Gulf Wars was to sell the news, i.e., buying stocks,” wrote Wells Fargo strategist Ohsung Kwon in a note to clients.
Morgan Stanley (MS) issued a similar opinion, saying that the next one to two weeks could be volatile but also create a “buy-the-dip opportunity.”