Navigating Geopolitical Volatility: Why Markets Historically Rebound from Middle East Conflicts

The Middle East has once again become a flashpoint, with Israeli strikes on Iranian nuclear facilities and retaliatory attacks threatening to escalate into a broader regional conflict. As Brent crude prices spike and equity markets oscillate, investors are left wondering: Is this the start of a prolonged market slump, or another buying opportunity disguised as fear?

History suggests the latter. Over the past 50 years, the S&P 500 has shown remarkable resilience in the face of Middle East conflicts, often rebounding within weeks or months of geopolitical shocks. Today's tensions mirror past crises, yet key structural advantages—energy resilience, inflationary discipline, and sector-specific tailwinds—are positioning this as a prime moment for strategic contrarian investing.

### The Historical Pattern: Volatility, Then Recovery
Since the 1973 Arab-Israeli War, Middle East conflicts have triggered short-term market dips but rarely lasting damage. Kingsview Wealth Management's analysis reveals a consistent pattern:



- The 1973 OPEC Embargo: The exception that proved the rule. Unlike later conflicts, this crisis caused a prolonged slump due to systemic oil shortages and inflation. Modern markets, however, are far less vulnerable. The U.S. now produces 13.5 million barrels of oil daily, and OPEC+ holds ample spare capacity to offset disruptions.
- 2022 Russia-Ukraine War: The S&P 500 dipped 12% in early 2022 but rallied 19% by year-end, driven by resilient corporate earnings and Fed rate cuts.
- Current Context (2025): The index is just 1.5% below its February 2025 all-time high, having rebounded from April's lows. Inflation metrics (CPI/PPI at 0.1% MoM) remain subdued, shielding markets from the stagflation risks of the 1970s.



### Why Now Is a Buying Opportunity
BlackRock's Geopolitical Risk Indicator (BGRI) confirms that the current crisis is playing out within familiar parameters. The firm's analysis highlights three reasons to view this as a tactical buying opportunity:

1. The 14% Post-Crisis Rally: BlackRock's data shows that the S&P 500 has averaged a 14% gain in the two years following geopolitical crises since 1990. This reflects not just market recovery but the compounding effect of disciplined investment during volatility.
2. Energy and Defense as Near-Term Winners:
- Energy: Brent crude may surge in the short term, but the sector's long-term fundamentals remain intact. BlackRock's Energy and Resources Income Trust is overweight in oilfield services (SLB, HAL) and LNG exporters (LNG, SRE), which benefit from regional instability and the energy transition.
- Defense: BlackRock identifies Raytheon (RTX) and Lockheed Martin (LMT) as top picks for missile defense and air superiority contracts. Cybersecurity firms like CrowdStrike (CRWD) and Palo Alto Networks (PANW) are also critical as state-sponsored cyberattacks rise.
3. Avoiding the Panic Trap: Investors often overreact to geopolitical headlines, selling equities at depressed valuations. The S&P 500's current P/E ratio of 20.5x is below its 5-year average of 22.3x—a sign of undervaluation during this crisis.

### Risks and Prudent Positioning
No opportunity comes without risk. Key concerns include:
- Oil Price Spikes: A full blockade of the Strait of Hormuz could push Brent crude to $100+/barrel, squeezing consumer spending. Diversification into gold (GLD) and inflation-linked bonds (TIPS) mitigates this risk.
- Diplomatic Solutions: A sudden ceasefire or nuclear deal could drain momentum from defense/energy stocks. Investors should avoid overconcentration in single sectors.

### The Contrarian Playbook
1. Stay Aligned with Long-Term Trends: Maintain core equity exposure. The S&P 500's historical resilience is underpinned by corporate innovation and global supply chain adaptability.
2. Tactical Bets in Energy/Defense: Allocate 10–15% of portfolios to energy infrastructure and defense contractors. For example, RTX's 15% projected earnings growth in 2025 makes it a high-conviction pick.
3. Hedge with Unrelated Assets: Gold (5–10% allocation) and infrastructure REITs (e.g., AMT) provide ballast against inflation and volatility.

### Conclusion: Crisis as Catalyst
Middle East conflicts are here to stay, but markets have consistently turned fear into fuel. With inflation tamed, energy supply secure, and the S&P 500 trading at discounted multiples, now is the time to deploy capital into resilient sectors. History shows that geopolitical storms pass—what remains is the patient investor's gains.



Invest with discipline, and let the market's proven resilience work in your favor.