Geopolitics and the Limits of Market Timing

Funny thing about wars. It can be expected for markets to decline. And sure enough, market averages are declining.

Here are some stats from Google AI chatbot Gemini:

Average One-Day Drop: Roughly -1.0%
Average Peak-to-Trough Decline: Roughly -5% to -6%
Average Days to Bottom: Approximately 21–28 days (3–4 weeks)
Average Days to Full Recovery: Approximately 28–45 days (back to pre-conflict levels)

Note on 1973: The Yom Kippur War is a significant outlier. The market took years to recover not just because of the war, but because it triggered the Arab oil embargo, which led to stagflation and a severe global recession.

That last note on the Yom Kippur War is significant because it triggered the Arab oil embargo and had a much larger economic impact. Although the average recovery from war events has been relatively modest when the larger economy is affected, there could be more damage.

There added uncertainty with our current President is his impulsive decision making. An example would be last week there was one day when the President said the war would be short and is almost over and markets rallied. There is no doubt on the day that the war is ended there will be a market rally and the uncertainty around when that might happen makes timing any investing impossible. Our strategy says no market timing.

As we have discussed before in By the Time It’s News, Markets Have Moved, markets often move faster than the headlines, making reactionary investment decisions especially difficult.

As discussed previously in The Fed’s Balancing Act & Stagflation Concerns, this type of environment can make policy decisions increasingly difficult.

Prediction Market Spikes: Probability of a 2026 recession on platforms like Kalshi and Polymarket jumped from approximately 22% in late February to as high as 34%–43% by mid-March.

Goldman Sachs Outlook: Goldman Sachs recently cut its U.S. economic outlook, citing a 25% chance of a recession over the next 12 months. They noted that the "transmission channel" is primarily the price of oil, which has surged past $100 per barrel.

Labor Market Cooling: Recession mentions were further amplified by the February jobs report, which showed a surprising loss of 92,000 jobs and an increase in the unemployment rate to 4.4%.

This ties closely to themes we have already discussed in Market Update: Debt, Inflation, Tariffs & Geopolitical Tensions and New Highs, Old Worries: Inflation, Trade, and What Comes Next.

That being said the final word from Gemini is: Positive 12-Month Outlook: In approximately 70% to 75% of cases, the S&P 500 has been higher one year after the onset of a geopolitical crisis.