Deja Vu
This letter is the personal view of Steve Forbes. Please check the appropriateness to your individual position with your adviser before taking or refraining from any action.
"The best laid schemes o’ Mice an Men, Gang aft agley”. I suspect when Rabbie Burns wrote ‘To a Mouse’ he was not thinking of me having to re-write a newsletter nearly 250 years later, but like anyone going to, or on, a break in Dubai, events over the weekend have resulted in a change of plan.
It seems once in a generation we get embroiled in conflict in the Middle East. Kuwait in 1991, Iraq in 2003 and now Iran in 2026. Hopefully the saying things come in threes will prove to be the case for the poor souls living in this region.
In terms of investment returns what happened after the two previous conflicts in the region? In both cases the US stock market was higher a year later. In the first Gulf War it rose 10.2% and in the Iraq conflict it was 26.7% higher. In fact after most geopolitical events markets are higher a year later as can be seen in the chart below which shows one year returns in the S&P 500 after nine major geopolitical events since the Korean War.
No-one knows how long the current conflict will last and what the landscape will look like when it ends, but no doubt the news media will fill us with fear and dread in the meantime. They must feel all their Christmases have arrived at once, with no doubt record viewing figures and clicks. I know I watched more news channel coverage over the weekend but to be fair this isn’t hard as it is normally zero.
One difference between this and previous conflicts is we now have social media stirring the pot as well. A quick look at ‘X’ in the last couple of days has shown the propaganda machines and bots have been churning out fake news by the barrow load, unless of course the Iranians really have taken out the whole of the US navy stationed in the Straits of Hormuz without us knowing. There is nothing new in this as Lord Haw Haw broadcast Nazi propaganda to the UK throughout the war, although he did not have AI to help him.
This will undoubtedly increase nervousness which is not helped by financial reporting which will spew out the usual headlines about markets collapsing because of the conflict. Over the weekend whilst markets were closed, we were told shares would sell off ‘heavily’ when they opened on Monday. At the time of writing (Tuesday morning) the S&P 500 is virtually unchanged from its Friday close. As I write Bloomberg’s headline is ‘FTSE 100 at a two week low’. Terrifying….
We will see swings in the market during the conflict but that is normal and nothing to be scared of.
Rabbie ends ‘To a Mouse’ with the line “An’ forward though I canna see, I guess an’ fear!” Although this was written 250 years ago human nature has not changed. We are hardwired to fear the worst. But nobody knows the long term impact the conflict will have on global economies. If Iran ends up no longer being a pariah state, what would that do to the price of oil? What if we no longer saw threats to shipping going through the region? Not every possible outcome is negative.
Of course, we will have to go through a period of uncertainty before we get there but like those stuck in Dubai, sheltering in place is the sensible thing to do when it comes to your investments and pensions.
