Often quoted in major national media, Adam is a Chartered Financial Analyst (CFA®), a CERTIFIED FINANCIAL PLANNER™ (CFP®), and has been included on the Forbes NextGen Best-in-State Wealth Advisors 2019 list. He is a member of the CFA Society of Los Angeles and the CFA Institute. Adam helps establish asset allocation strategy as a member of the EP Wealth Investment Committee, which supports all EP Wealth Advisors and their clients. The Committee’s top-down approach to portfolio construction begins with an outlook on the economy’s likely direction, followed by the implications for different economic sectors and asset classes. This culminates in strategic selection of the individual stocks, bonds, mutual funds or other investments deemed most appropriate for each individual client’s portfolio.
Market Update: Keeping Perspective Amid Geopolitical Uncertainty
As the new month began, markets were preparing to focus on a busy week of economic data, including the latest employment report. However, that narrative shifted quickly following weekend news of escalating military conflict involving the United States and Iran.
Markets reacted as expected when trading opened, with the S&P 500 initially down about 1.5%. By late Monday morning, however, losses had largely recovered, and the market was roughly flat. While the situation remains fluid and headlines may continue to drive short-term volatility, the early market response offers an important reminder: markets often adjust quickly as investors assess the broader implications.
What History Tells Us
Periods of geopolitical tension understandably raise concerns, but history provides useful perspective. Market performance following military conflicts has generally been resilient. Data tracking conflicts over several decades shows that equity returns one month, three months, six months, and even one year after the onset of conflict have typically been positive.
There have been exceptions, but those periods coincided with broader economic or financial stress. For example:
The takeaway is that geopolitical events alone rarely drive long-lasting market declines. Financial conditions and economic fundamentals tend to matter far more.
The Key Risk to Watch: Energy
The primary channel through which current tensions could affect markets is energy prices.
Roughly 20% of the world’s oil supply moves through the Strait of Hormuz, a critical shipping route in the Middle East. Any disruption there could push oil prices higher. At the time of this update, oil prices had already risen approximately 8%.
Sustained increases in energy costs could:
Market impacts, if any, are likely to be concentrated in specific areas such as energy, airlines, and travel rather than broad-based across all sectors.
Why the Long-Term Outlook Still Matters Most
When uncertainty rises, the most important question for investors is simple:
Does this change the long-term outlook for economic growth and corporate earnings?
At present, the answer appears to be no.
Current expectations call for corporate earnings to grow at a healthy pace—around 15% in 2026. Unless geopolitical developments begin to meaningfully weaken those expectations, the fundamental backdrop for equities remains constructive.
For that reason, periods of market volatility driven by headlines are often best viewed through a long-term lens rather than as reasons to make significant portfolio changes.
Staying Focused on the Plan
Geopolitical events can create short-term market swings, but history suggests they rarely alter long-term investment outcomes on their own. For long-term investors, maintaining discipline and focusing on fundamentals remains the most effective approach.
We will continue to monitor developments closely and assess any potential impact on economic growth, inflation, and earnings expectations.
As always, if you have questions about your portfolio or the current market environment, please reach out to your financial advisor.
EP Wealth Advisors offers a comprehensive range of services to help you invest with greater insight, as well as develop a holistic wealth management strategy. To discuss your finances and investment goals, we invite you to contact one of our advisors.
Disclosures:
Video Summary:
Adam Phillips:
Well, as usual, there's no shortage of topics for us to cover. I had planned on talking about the underperformance of technology, the magnificent seven companies in this rotation, and the rest of the market. On today's weekly update, I was also planning to talk about this being a big week for economic reports.
This is the first week of a new month, which means we get a lot of important data, including the jobs report. That's all important, but it really all goes out the window. It went out the window over the weekend when on Saturday we woke up to news that the US and Israel. Had attacked Iran. And so we know all the events that, that have transpired since then.
And we were all waiting for the market, just looking at the future's activity. Last night, on Sunday night, we were all waiting for the markets to open. Pretty weak. And we did. We saw the S&P 500 open up, down about 1.5%. As we're recording this. It's later on Monday morning. The markets have actually recovered.
They're about flat for the day, and so take that for what you will. This is still a very fluid environment, though, and so President Trump actually spoke earlier. He said this conflict could last about four or five weeks, but he also said it's going to last as long as needed. And so this is something that we can't pretend to have any insider knowledge or clarity on.
And we're really just waiting for more facts and information to come here. But what does this mean for us as investors? I think it's really important not to let these geopolitical events derail a long-term investment plan. What we've seen historically is that it's the financial events, a financial crisis, that can have a long-lasting and deep impact on an investment portfolio.
Historically, we actually see that geopolitical events do not have a long-term impact. , and a prolonged impact on investment performance. And actually, the visual for this week comes from Schwab, and it's a table looking at military conflicts over the last several decades. And what it does is it looks at performance.
One month after that conflict began, three months after it began, six months, and then one year following the outbreak of that conflict. And the takeaway here is that forward returns are not negatively impacted by conflicts going back in history. And so past performance is no guarantee, but I think this really helps to just provide that broader perspective here.
You will see on that visual that there are a couple of exceptions. One of them is the Afghan. That the war in Afghanistan in, in 2001, you see that performance 12 months later was negative by actually a fair amount. And that is largely because I, that that happened to coincide with the.com bubble bursting.
So there was a lot more going on there. So I think these exceptions almost deserve an asterisk. The other exception you see there is in 2022. And let's just, if we rewind the clock a few years, we remember that this is a year when we were dealing with the highest inflation in about 40 years. And because of that, the Federal Reserve had to respond very aggressively by tightening rates.
And so we saw 2022 was actually a, a really rough year for both stock and bond investors. So again, I think these exceptions deserve an asterisk. For investors. I think that what we need to focus on here and what we're all waiting to see is what happens with energy prices. I think that's how a lot of this is going to be transmitted.
These issues in the Middle East are going to be transmitted to the investment landscape. It's really energy prices. We're focused a lot on the genre of horror movies. That is because about 20% of the global supply of oil goes through this waterway. And so if there are disruptions there, that could cause energy prices to spike.
And sure enough, this morning, we are seeing that oil prices are up about 8% at the time of this recording. The question is, how long will this last? If it lasts, then that certainly doesn't help our case towards getting inflation lower, which could actually increase inflationary pressures, and it comes at a really rough time when we know that there's still a lot of tariff uncertainty.
That inflation, as it remains above the Fed's target, which is 2%, is closer to 3% right now. And we know that this is a midterm election year. So President Trump is certainly going to be watching this when affordability remains one of the central themes during this midterm election cycle.
So that's what we are, really focused on here, and that's why we think a lot of the investment and market reaction is going to be concentrated within a handful of these sectors. Energy, um, the impact on travel stocks, airline stocks, we are not worried about a broad market selloff or certainly one that lasts, because at the end of the day, what we focus on is when you're faced with this kind of uncertainty, the question that you need to ask is, does this impact the long-term trajectory of the economy?
And for corporate earnings? Right now, one of the reasons that we have a favorable outlook on the equity markets is because. The expectation is for corporate earnings to grow at a very healthy clip of about 15% in 2026. If we start to see expectations start to move lower and considerably lower as a result of what's going on in the Middle East, that might cause us to rethink our outlook.
But for right now, we need to ask ourselves does the, do the, the most negative or bear scenarios have a meaningful impact on the growth trajectory? And right now the answer is no. That is why if we see some volatility, we're likely to look through it. We advise you to do the same. I'll leave it there for now.
I'll look forward to checking back in next week. But as always, if you have any questions, please don't hesitate to reach out to your financial advisor.