Stocks Shrug Off Geopolitical Risk as UBS Says Drawdowns Are Short-Lived

UBS: Stock Market Drawdowns From Geopolitical Shocks Tend to Be Short-Lived
Despite a year dominated by geopolitical risk—including sweeping tariffs announced in April 2025, the ongoing war in Iran now in its seventh month, the war in Ukraine entering its fifth year, and expanding Houthi attacks in the Red Sea—UBS Wealth Management chief investment officer Mark Haefele said such events don't always signal trouble for stocks.
"The challenge for investors is that they must make two forecasts at once," Haefele wrote in a note to clients Friday. "First, whether a geopolitical event will prove economically significant, and second, whether the consequences are already reflected in asset prices."
Haefele noted that geopolitical drawdowns in the stock market historically last a median of just 16 days. Since Pearl Harbor in 1941, the S&P 500 has been higher 12 months after the start of a geopolitical crisis roughly three-quarters of the time, and recovered within a month in about half of past incidents.
Despite the Iran conflict pushing oil prices above $100 and JPMorgan commodities strategists saying they "don't have a baseline view" on the war's endgame, the S&P 500 remains just slightly off all-time highs, with investors focused more on earnings growth and the AI boom. Haefele cautioned that "investors should therefore be cautious about assuming that current geopolitical fears will persist indefinitely."