How Geopolitical Events Impact Your Portfolio

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Written By Jonathan M. Elliott, CPWA®, CRPC®, CDFA®, ChSNC®, CPFA™, RMA®

Geopolitical risk is rising as tensions between Russia and Ukraine escalate in Eastern Europe. Financial markets are watching closely as the situation evolves. Given these headlines, you may be wondering how geopolitical events historically impact the stock market. Below is a list of 12 historical geopolitical events from the past decades and the S&P 500’s performance in the days and months after each event.

S&P 500 Performance After Major Events

The data shows the stock market historically sells off when geopolitical events initially occur. The S&P 500’s average price return on the first trading day following the 12 events was -1.5%, suggesting investors sold stocks due to the initial geopolitical shock. However, the data also shows the concerns faded over the following months. The S&P 500’s average 1-month price return following the events was +1.9%, indicating the S&P 500 recovered its initial losses and more. Over the following six months, the S&P 500’s average price return was +7%. The two notable exceptions were Pearl Harbor, which led to further U.S. armed conflict, and Iraq’s invasion of Kuwait, which coincided with an early 1990s recession that lasted from July 1990 to March 1991.

Geopolitical risks are always a concern, and the analysis below is not intended to minimize the events. However, there is limited historical evidence of geopolitical events and international conflicts impacting U.S. stock market performance. Investors look past events without a direct impact and focus on key long-term performance drivers, such as the economic environment and corporate earnings. Given the U.S.’s economic strength, we expect markets to look beyond the current geopolitical tensions.

Our Insights

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Jonathan M. Elliott, CPWA®, CRPC®, CDFA®, ChSNC®, CPFA™, RMA®

I am currently the Managing Partner for our independent investment advisory firm, Optima Capital Management. Together with my business partners, Todd Bendell CFP® and Clinton Steinhoff, we founded Optima Capital in 2019 as a forward-thinking wealth management firm that serves as an investment fiduciary and family office for high-net-worth individuals and families. In addition to being the Chief Compliance Officer, my role at Optima Capital is portfolio management. I have over 18 years of experience in managing investment strategies and portfolios. I specialize in using fundamental and technical analysis to build custom portfolios that utilize individual equities, bonds, and exchange-traded funds (ETFs). I began my financial services career with Merrill Lynch in 2003. At Merrill, I served in the leadership roles of Market Sales Manager and Senior Resident Director for the Scottsdale West Valley Market in Arizona. On Wall Street Magazine recognized me as one of the Top 100 Branch Managers in 2017. I am originally from Saginaw, Michigan, and a marketing graduate from the W.P. Carey School of Business at Arizona State University. I am a Certified Private Wealth Advisor® professional. The CPWA® certification program is an advanced credential created specifically for wealth managers who work with high net worth clients, focusing on the life cycle of wealth: accumulation, preservation, and distribution. In addition, I hold the following designations - Chartered Retirement Planning Counselor (CRPC®), Certified Divorce Financial Analyst (CDFA®), Certified Plan Fiduciary Advisor (CPFA), and Retirement Management Advisor (RMA®). In the community, I am a member of the Central Arizona Estate Planning Council (CAEPC) and serve as an alumni advisor and mentor to student organizations at Arizona State University. My interests include traveling, outdoors, fitness, leadership, entrepreneurship, minimalism, and computer science.

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