My Dad caught my brother and me having a BB gun war. I hid behind a tractor tire trying to shoot my brother’s baseball cap off, and my brother was using his Daisy BB gun to try to give me another cowlick. When Dad came around the corner, there was an immediate ceasefire. Hopefully, the Middle East ceasefire won’t be as painful as our BB war.
Shortly after news broke about a two-week ceasefire between the U.S. and Iran, global markets saw huge swings in volatility. Markets fell sharply just before President Trump’s April 7th deadline, when he said the U.S. would begin bombing Iranian power plants and bridges. Then, when news of the ceasefire was announced, they swung crazy high, and oil prices dropped 17%.
The main points of the ceasefire agreement are that the U.S. and Israel will pause bombing on Iran for two weeks, subject to Iran keeping the Strait of Hormuz open. Iran’s Supreme National Security Council proposal mentions establishing “a secure transit protocol in the Strait of Hormuz, ensuring Iran’s control under the agreed framework,” but no one knows yet what that means.
Long-term investors shouldn’t overreact to short-term volatility. This investment principle has been proven historically. Since 1980, the S&P 500 has been negative at some point in every single year, and most have had significant intrayear declines. The fact is that markets don’t move in a straight line, and every year will have some kind of correction. This is the normal cycle for investing. In the past 46 years, the market has been negative at some point in the year, yet in 35 of those 46 years, it reversed and ended the year positive.
It is a natural reaction for a worried investor when the market is near its yearly low to wonder whether they should abandon stocks altogether “before they lose everything.” The reality is that the market volatility will end, and the investor will be thankful that they didn’t cash out at a market low.
The current cause of volatility is the war in Iran and the closure of an important oil waterway. So far, markets are responding favorably to the two-week U.S.-Iran ceasefire deal as if it were a permanent solution. In reality, it is just a pause to give both sides time to reach a longer-term peace accord that allows ships to resume sailing through the Strait of Hormuz. Undoubtedly, a demilitarized Iranian regime would make the world safer and lead to more stable markets by removing a geopolitical risk that has persisted for nearly fifty years.
While no one can predict if this military pause will last, it should be comforting to investors that the U.S. economic base and corporate America’s earnings power remain strong. When volatility returns, and I guarantee you it will at some point, put your seat belt on and keep your emotions in check. From a market perspective, neither the Iran war nor the ceasefire lessens my confidence in the long‑term attractiveness of the U.S. stock market.
Dad, who had been welding something in the shop, had been yelling for us to come hand him a piece of steel, but neither of us heard him. When he came out and found us about to shoot each other’s eyes out, he was more than mad. He gave us one of the biggest whippings of our lives, and to be honest, we deserved it. Hopefully, Iran is finally tired of getting the biggest whipping of its life and will become a civilized nation and less of a bully.
Have a blessed week.
Richard Baker
This article was written by humans for humans because AI doesn’t have this quality of sarcasm.
All investing involves risk, including loss of principal. No strategy assures success or protects against loss. The economic forecast outlined in this material may not develop as predicted & there can be no guarantee that strategies promoted will be successful.
Fervent Wealth Management is a financial management and services entity in Springfield, Missouri.