The Rational Market in an Irrational World

What the S&P 500 Tells Us About Investing Through Global Turmoil

On 3 April, The Sun ran the headline: Russia warns war with Iran will trigger ‘irreversible catastrophe’. 

When headlines like this scream conflict, investors flinch⸺it’s a natural reaction, after all. 

Consequently, I have been asked frequently whether conflict in the Middle East will lead to market losses.

Given the ongoing tension, in October 2024, Barnaby Cecil conducted a focused study on the performance of the S&P 500 during major Middle East conflicts over the past 30 years. 

The findings, as depicted in Figure 1, offer a striking counterpoint to the prevailing narrative: markets, more often than not, stay rational amid geopolitical disorder.

Beyond Instinct: What the Data Says

The research reviewed eight significant geopolitical events in the Middle East, including the Iraq War, 9/11, and more recent flashpoints like the 2023 Israel-Hezbollah conflict.

Each event was selected based on its geographic and political relevance, degree of international involvement, duration and scale, plus economic and geopolitical implications, especially for oil and inflation.

You might expect these high-impact events to shake global markets, but here's the unexpected truth:

• Only 2 of the 8 conflicts saw negative S&P 500 returns.
  
  
• Average return during these conflicts was 7.76%, just a shade below the 30-year market average of 9.87%.
  
  
• In 2003, amid the Iraq War and a 35% spike in oil prices, the S&P 500 surged 26.83% — its best year of that decade.
  

These findings reveal that, despite alarming headlines, market behaviour remained statistically ordinary. As I noted during the study: “I couldn’t find any correlation between negative market performance and Middle East conflict.”

What’s Driving This Resilience?

It may feel counterintuitive, but markets thrive on a broader canvas than daily headlines. Here’s why:

Markets Price in Known Risks | Modern markets are information-rich. By the time conflict hits the front page, institutional investors have often priced in the potential outcomes.

Economic Engines Run Deeper | The S&P 500 reflects global companies whose earnings rely on thousands of variables. Geopolitical conflict is just one, and rarely the most influential.

Flight to Quality Doesn’t Mean Flight from Equities | In uncertain times, investors may rebalance into large-cap U.S. equities—particularly the kind the S&P 500 represents—as a relative safe haven.

What This Means for Investors

Fear is rarely your friend when investing. 

Emotional decision-making, especially around geopolitical events, has historically been a poor guide. 

The evidence suggests staying invested is not just a theoretical ideal—it’s a practical, proven strategy.

This doesn’t mean dismissing risk; it means recognising that volatility does not always equal loss, and that well-diversified portfolios often weather storms better than expected.

Rational Optimism

We live in a world where tension is permanent, but so is progress. 

Despite conflict, chaos, and complexity, the long arc of markets bends towards growth. 

The data confirms what seasoned investors already sense: staying the course is not naïve — it’s intelligent.

At Barnaby Cecil, we help clients cut through the noise and focus on the evidence, because when others are reacting, the real advantage lies in responding calmly, intentionally, and with data to back the plan.