Geopolitical Crises: Short-Term Drama, Long-Term Yawn

Yes, geopolitical crises can make headlines and cause some market jitters, but history shows they’re just temporary blips on the radar. When tensions rise in places like Russia, China, or the Middle East, markets tend to dip slightly—around 1% in the short term, with the worst case averaging a 4.7% drop. But here’s the kicker: In the year following a major geopolitical event, markets typically rebound by 2.1%.

So, while the news may sound alarming, geopolitical crises are rarely long-term threats to your investment portfolio. The market is far more resilient than the doom-and-gloom headlines suggest.

Earnings Reports: The Perception vs. Truth

Investors eagerly await each quarter’s earnings reports, hoping for signs of their next big win. But while these reports offer a snapshot of how a company is doing in the moment, they’re not the crystal ball for predicting long-term investment returns. In fact, earnings reports often get way more credit than they deserve in shaping investment decisions.

If earnings truly dictated returns, we’d see clear proof of it – earnings would go up, and so would investment returns. Yet, history tells a different story. Take the S&P Composite Index, for instance. Over the last century, earnings growth and investment returns have barely shared a handshake, let alone a tight-knit correlation.

So, while earnings reports are interesting (and sometimes dramatic), don’t let them derail your long-term investment goals. Consider them, but don’t treat them as the Holy Grail.

What Goes Up, Must Come Down (And Vice Versa)

Extremes never last. Over time, stock valuations have a natural pull back to their long term averages. No matter how high or low the market swings, valuations usually come back down to earth. So when valuations go through the roof, resist the urge to make drastic changes. The market will find its balance again.

Here’s the truth: long-term investors don’t sweat market fluctuations. Why? Because no one—and I mean no one—can tell you exactly what the market’s going to do tomorrow, next week, or next month. If someone claims to have cracked the code, you might want to give the U.S. Securities and Exchange Commission a heads-up.

Financial Wisdom: Stay Cool, Stick to the Fundamentals

The takeaway? Don’t let the noise of earnings reports, geopolitical scares, or extreme market conditions sway your long-term strategy. Fundamentals like earnings growth, dividends, and cash flow still reign supreme when valuing stocks. The market may have its ups and downs, but smart, patient investors focus on the bigger picture.

A financial professional can help you navigate these waters and keep you on course for the long haul.

This material is for information purposes only.  The content is developed from sources believed to be providing accurate information; no warranty, expressed or implied, is made regarding accuracy, adequacy, completeness, legality, reliability, or usefulness of any information. Consult your financial professional before making any investment decision. For illustrative use only.

Sources:

https://blogs.cfainstitute.org/investor/2021/03/22/myth-busting-earnings-dont-matter-much-for-stock-returns/ 

https://www.lpl.com/research/blog/middle-east-conflict-how-stocks-react-to-geopolitical-shock.html

https://insight.factset.com/sp-500-forward-p/e-ratio-rises-above-20.0-for-first-time-in-2-years 

.