Escalating military action in the Iran war has rattled equity markets, pushing the S&P 500 (SNPINDEX: ^GSPC) down 0.79% in a single session during mid-July.
President Donald Trump’s announcement that the U.S. would renew a blockade of Iranian ships through the Strait of Hormuz triggered the sharp one-day decline.
The Iran war reignited in July after a brief period of reduced hostilities, sending both oil and equity markets into volatile territory.
Geopolitical uncertainty is being compounded by shifting economic policy from the Trump administration, making market conditions increasingly difficult to read.
The CBOE Volatility Index (VOLATILITYINDICES: ^VIX), widely known as the fear gauge, stood at 18.7, compared to an average of 17.91 in June.
During the early days of the war in March, the VIX averaged a notably elevated 25.6, signaling the kind of investor anxiety that can accompany military conflict.
Adding to market pressure, Trump announced plans to place an additional 50% tariff on certain Canadian goods, further clouding the economic outlook.
The administration has also been pursuing broad-based tariffs, implementing levies of 10% to 25% on 60 trading partners after temporary measures expired.
The Supreme Court struck down Trump’s previous tariff attempts, forcing the administration to recalibrate its approach to trade policy.
Together, military action and trade uncertainty could drive volatility higher, though long-term investors have historically found opportunity in such turbulent environments.
Investors who held the S&P 500 from the start of 2007, through the Great Recession and beyond, earned a 659% return including dividends by holding through the turmoil.
Those who invested at the start of 2020, before the COVID-19 pandemic disrupted global markets, would have seen a 153% return without adding additional capital.
Short-term fixed-income exchange-traded funds remain a more appropriate option for investors without a long time horizon or a high tolerance for current market swings.
For patient investors, however, periods of elevated volatility driven by geopolitical events and policy uncertainty can represent a genuine and significant wealth-building opportunity.
