One of the more surprising developments since the U.S.–Iran conflict began has been the stock market’s resilience. While oil prices have surged roughly 40% per barrel, the S&P 500 has only fallen about 4% over the same period. In our view, this reaction suggests investors believe the spike in oil prices will prove temporary. Markets appear to be pricing in a scenario where oil settles back down in the coming months — even if not all the way to pre-conflict levels.
What markets are telling us
Since the conflict began, oil has surged while most other areas of the market have sold off.
There’s been quite a bit of dispersion in the selling though, mainly in the difference between the S&P 500, which has fallen -3.50%, and non-US stocks, which are down 8.50%. This reverses a years-long trend that has seen non-US stocks outperform their US counterparts (non-US stocks rose 28% in 2025 compared to 17% for the S&P 500, for example).
The reversal of this trend in response to the war likely stems from the fact that the US is far more energy independent than nations like the EU. US energy needs may be further insulated due to the recent take-over of Venezuelan oil assets by the US government.
That doesn’t change the fact though that the price of oil reverberates around the globe. A sustained elevation in oil prices would be expected to slow economic demand and filter into inflation readings. Worries about inflation ramifications are the expected cause for a sell-off in bonds since the conflict began. Bonds, which typically rally as a “flight to safety” during periods of war, have sold off by 1.5%. We view the current sell-off in bonds as a good buying opportunity for income or safety-seeking investors. Starting bond yields above 4% bode well for your odds of generating positive returns from bonds moving forward.
Can March be the bottom?
While the stock market has held up better than expected, the S&P 500 still made a new low for 2026 this month. March has marked famous market bottoms before, including 2009 and 2020. Historically, however, when the S&P 500’s yearly low occurred in March, the market had already fallen about 13–15% on the year. This year the index was only down 3.30% on the year at its lowest point. In fact, 2007 is the only year the S&P 500 bottomed in March with less than a 5% decline for the year.
When the S&P 500 has held its March low, returns have historically been very strong, averaging about +32% over the following year. In years when the market made a new low in March but later broke below that level, the S&P 500 has typically fallen another ~13% before the ultimate bottom. That makes the March lows an important level we will be monitoring closely in the weeks ahead.
Another level we’re watching on the S&P 500 is last year’s closing level of 6,845. Since 1928, the S&P 500 has finished the year positive about 67% of the time. However, when the index is negative on the year through March, the odds of finishing the year positive fall to roughly 57%. Rebounds can be powerful in these “come-from-behind” years, but downtrends can persist as well.
Don’t forget about “year four” observations
What we find interesting about these statistics is how closely they align with the data we shared last September examining year four following a three-year winning streak. As a reminder, the S&P 500 entered 2026 after three consecutive positive years, making this year a “year-four” observation in a three-year win streak.
Since 1928, there have been 11 instances where the S&P 500 entered a fourth year after a three-year winning streak. In those cases, 6 of the 11 outcomes (55%) finished positive, while 5 of the 11 (45%) finished negative.
The average return across all year-four outcomes has been +6.7%. When the streak extended to a fourth year, the average gain was +21.8%. When the streak ended, the average decline was −11.5%.
Interestingly, in the five historical instances where a three-year winning streak ended in year four (1957, 1966, 1973, 1981, and 2022), the market was already negative on the year by the end of March in four of those five cases.
So it’s possible that 2026 could end up being a down year for stocks. If that happens, it’s important to remember that historically, negative “year-four” outcomes have tended to be pause years within longer bull markets, rather than major market tops. Looking ahead, year five following a three-year win streak has averaged about +17.9%, suggesting that even when volatility emerges during year four, markets have often gone on to deliver solid gains the following year.
For now, the key variable markets are watching remains the price of oil. If oil prices begin to stabilize or move lower, stocks could still put in one of their patented March bottoms. If stocks ultimately move lower instead, history suggests another ~10% of downside would not be unusual. Should that occur, we would view it as a buying opportunity, much like we currently view bonds. The historical data we’ve discussed suggests the current environment is not unusual and that long-term investors have historically been rewarded for staying disciplined through bumps in the road.
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