We understand that the headlines coming out of the Middle East are unsettling. Geopolitical events can create short-term volatility, but history shows that markets tend to respond more to lasting changes in economic fundamentals than to the initial shock of dramatic news.

Over the past century, markets have navigated World War II, Korea, Vietnam, the Gulf War, 9/11, the Global Financial Crisis, COVID-19, and numerous regional conflicts. While sharp declines sometimes followed these events, markets historically stabilized within weeks or months and moved higher over time.

While we are not currently in a market correction, it’s helpful to understand what one is and how it typically plays out within the broader investing cycle.

A market correction is defined as a decline of 10% or more from a recent high. Following the S&P 500 Index, we are currently less than 5% from its all-time high. Since March 1980 through October 2023, there have been 37 market corrections, with the average decline totaling -18.38%. More important than the drop itself is what has historically followed:

• One year after a correction, markets rebounded an average of +24.32%.
• Two years later, returns averaged +17.91%.
• Three years later, returns averaged +13.33%.
• Nearly 89% of the time, markets were higher one and two years later — and 94% of the time they were higher three years later.

Corrections rarely feel comfortable, but historically they have been temporary interruptions within longer-term growth trends.

In the current situation, oil is the key variable to watch. Roughly 20% of global energy supply moves through the Strait of Hormuz. For this conflict to materially impact the global economy, energy supply would likely need to be disrupted for an extended period — months, not days or weeks.

Oil prices have risen approximately 14% since Friday afternoon as of 11am EST. While notable, markets are not behaving as though a prolonged supply shock is expected.

Importantly, the U.S. is in a stronger energy position today than during past geopolitical crises. Since 2019, the U.S. has been a net exporter of energy, providing a degree of insulation to our economy. Europe and parts of Asia are more exposed, but alternative supply sources help buffer potential disruptions.

Energy also represents a smaller share of consumer spending than in prior decades. In 2024, U.S. consumers spent about 5.7% of disposable income on energy, compared to roughly 10% in the mid-1980s. That structural shift reduces the broader economic sensitivity to energy price spikes.

So far, market behavior suggests investors do not expect a prolonged disruption to global oil supply. International markets have experienced more pressure than U.S. stocks, partly due to currency strength and energy exposure. Gold has moved modestly higher as a traditional safe haven, while Treasury yields have risen, possibly reflecting inflation concerns tied to energy prices.

We are closely monitoring developments and will adjust if the fundamentals change. Our focus remains on disciplined portfolio management, diversification, and long-term strategy — not reacting emotionally to short-term headlines.

Periods like this remind us that volatility is normal. Staying invested through uncertainty has historically been one of the most important drivers of long-term success. For those continuing to contribute regularly to retirement and brokerage accounts, times like this can also create opportunity, as systematic investing allows you to purchase shares during pullbacks.

If you would like to discuss how current events relate specifically to your plan, we are always here to talk.