The U.S. stock market, for instance, has endured a range of shocks, from financial crises and trade conflicts to global pandemics and wars. Yet the benchmark S&P 500 has historically recovered from each major decline over time. While the recovery process can sometimes take years, investors who exit the market during periods of panic risk missing the rebound and the gains that often follow.
Market strategists say the principle behind long-term investing remains unchanged even during periods of extreme uncertainty. Investors are generally advised to remain invested in equities if the funds are meant for long-term goals such as retirement. Money that may be needed in the near future should ideally not be exposed to stock market volatility.
Financial advisers have repeated similar guidance during previous market disruptions, including the economic fallout from the COVID-19 pandemic in 2020, the surge in global inflation in 2021, and the uncertainty triggered by tariff policies introduced by former U.S. President Donald Trump in 2024. Enduring short-term market shocks is often considered part of the cost of earning the higher long-term returns that equities have historically delivered.
War-driven volatility
Recent geopolitical tensions have added another layer of uncertainty to global markets. The conflict involving Iran has disrupted oil supply routes and contributed to sharp fluctuations in commodity and financial markets.
Much of the volatility has been linked to disruptions in the Strait of Hormuz, a narrow shipping route off Iran’s coast through which roughly one-fifth of the world’s oil supply normally passes. With shipping activity severely restricted, crude storage facilities in the region have begun to fill up, prompting some oil producers to scale back production.
The uncertainty around supply has pushed crude oil prices sharply higher. Oil briefly surged close to $120 per barrel last week, the highest level since mid-2022, as traders worried that supply disruptions could persist. Some analysts have warned that prices could climb as high as $150 per barrel if the shipping route remains closed for an extended period, according to a AP report.
A prolonged spike in oil prices could create conditions for stagflation, a scenario where economic growth slows while inflation remains high. Economists consider this one of the most difficult environments for central banks to manage because traditional policy tools struggle to address both weak growth and rising prices simultaneously.
Sharp swings, limited long-term damage
Despite dramatic daily market movements, the broader U.S. stock market has not fallen dramatically from its peak. The S&P 500 remains only a few percentage points below the record high it reached earlier this year.
However, the intensity of daily fluctuations has heightened the sense of instability among investors. Since the escalation of the Iran conflict, the Dow Jones Industrial Average has experienced several sessions in which it dropped hundreds of points early in the day before recovering much of the loss later in the same session.
Such volatility, while unsettling, is not unusual in equity markets. The S&P 500 has historically experienced declines of at least 10% roughly once a year on average. These pullbacks, commonly known as market corrections, are often seen by professional investors as a natural process that removes excessive optimism and helps prevent asset prices from becoming too detached from fundamentals.
The challenge of market timing
Moving investments from equities to safer assets such as bonds may reduce exposure to large market swings. However, exiting the market introduces another challenge: deciding when to reenter.
Market timing is notoriously difficult, and some of the strongest daily gains in stock market history have occurred during periods of broader downturns. Missing just a few of those recovery days can significantly reduce long-term investment returns.
Because of this uncertainty, financial advisers typically recommend investing in stocks only with money that can remain untouched for several years, often up to a decade. Funds meant for emergencies, such as medical expenses or home repairs, are generally better kept in safer and more liquid instruments.
Younger investors and market downturns
The rise of mobile trading apps has drawn a new generation of investors into the stock market. While many younger investors may be experiencing extreme volatility for the first time, they often have the advantage of a long investment horizon.
With decades remaining until retirement, younger investors typically have more time to recover from downturns and benefit from the long-term compounding of returns. Market declines can therefore represent opportunities to accumulate shares at lower prices.
Investors nearing retirement
For older investors, the situation can be more complicated. Those approaching or already in retirement have less time for their portfolios to recover from significant losses.
Financial planners often advise retirees to consider reducing spending or withdrawals during market downturns to preserve the long-term sustainability of their investments. Even after retirement, many portfolios must last 20 to 30 years, meaning continued exposure to growth assets like equities may still be necessary.
Risks of early withdrawals
Withdrawing money from retirement accounts during a downturn can have lasting consequences. According to the Associated Press, such withdrawals may trigger taxes and additional early-withdrawal penalties, while also locking in losses and eliminating the possibility of recovery for the withdrawn funds.
Although some plans allow loans against retirement savings, those arrangements can come with their own rules and risks.
Role of diversification
During periods of market stress, investors often move toward assets considered safer, including government bonds and gold. This dynamic typically supports the prices of those assets when equities decline.
However, the current environment has complicated that pattern. Concerns about persistent inflation and rising interest rates have pressured U.S. Treasury bonds at times, while gold has occasionally struggled when bond yields increase. Higher yields make fixed-income assets more attractive relative to gold, which does not provide interest income.
Uncertain outlook
Ultimately, predicting how long market volatility will last remains extremely difficult. While historical patterns suggest markets eventually recover, the timing and path of that recovery can vary widely depending on economic and geopolitical developments.
For long-term investors, the main lesson repeated by market strategists during past crises remains largely unchanged: volatility is unavoidable, but patience and discipline have historically been key ingredients for navigating it successfully.
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