The onset of war in Iran has roiled financial markets over the past several days. As we write this, the S&P 500, Nasdaq and Russell 2000 Indexes are all down over 1%, with energy prices rallying. Volatility has increased—markets climb on days when investors anticipate a quick resolution to the conflict and decline when those expectations turn more pessimistic.
The financial press is filled with opinions on where we’re headed from here, with forecasts ranging from bullish to bearish.
There are plenty of studies showing that equities generally rebound after a conflict begins. For example, after the first gulf war in 1991, the second gulf war in 2003, Russia’s invasion of Ukraine in 2014 and the Israel/Hamas war in 2023, the S&P 500 rallied over 10% in the subsequent 12 months. On the other hand, after the Yom Kippur war in 1973 and the Afghanistan war in 2001 began, the S&P was down over 20% in both cases over the following year.1
We do not have a crystal ball, and cannot presume to accurately predict the future, but the market is telling us that events and outcomes are significantly more uncertain than earlier in the year. In our view, the best approach to dealing with uncertainty is through appropriate diversification.
Now might be a good time to evaluate portfolio allocations and rebalance away from outperforming asset classes such as US Equities (up ~15% per year over 10 years) and Large-Cap Tech (up ~20% over 10 years), and into relative underperformers such as Fixed Income (10-year return of ~2%), Real Estate Investment Trusts (REITs) (10-year return of 7%) and International Equities (~10% over 10 years).2
Appropriate diversification can dampen volatility and provide ballast, especially during highly uncertain times.
Important Disclosures & Definitions
1 Source for returns: Bloomberg, as of 02/28/2026.
2 US Equities: S&P 500 Index, Large Cap Tech: NASDAQ 100 Index, Fixed Income: Bloomberg US Aggregate Bond Index, REITs: S&P US REIT Index and International Equities: MSCI EAFE Index.
Bear Market: a condition where a market experiences prolonged price declines, usually when securities prices fall 20% or more from recent highs amid widespread pessimism and negative investor sentiment.
Bloomberg US Aggregate Bond Index: a broad-based benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, fixed-rate agency MBS, ABS and CMBS (agency and non-agency).
Bull Market: a financial market in which prices are trending upward or are expected to trend upward.
MSCI EAFE Index: an equity index which captures large- and mid-cap representation across 21 developed markets countries around the world, excluding the US and Canada, covering approximately 85% of the free float-adjusted market capitalization in each country.
NASDAQ 100 Index: one of the world’s preeminent large-cap growth indexes. It includes 100 of the largest domestic and international non-financial companies listed on the Nasdaq Stock Market based on market capitalization.
S&P 500 Index: widely regarded as the best single gauge of large-cap US equities. The index includes 500 leading companies and covers approximately 80% of available market capitalization.
S&P US REIT Index: defines and measures the investable universe of publicly traded real estate investment trusts (REITs) domiciled in the United States.
One may not invest directly in an index.
AAI001118 03/17/2027