We’ve all been watching with equal parts hope and trepidation the current military conflict with Iran. Given the stakes, and the possible long-term disruption of oil deliveries in a world highly dependent on them, it’s understandable to feel uneasy about the stock market and your retirement savings. War headlines, volatile markets, and political uncertainty can make it seem as though financial markets are vulnerable to a long-term down trend or short-term crash. History, however, tells a different story. One of the most consistent patterns in modern financial markets is that geopolitical sell-offs tend to be brief. According to historical market data compiled by Vanguard, the average total return following a geopolitical shock has been about 5% six months later and roughly 8% one year later. Looking back helps put today’s turbulence into perspective. During the 1962 Cuban Missile Crisis, markets initially fell about 5%, but six months later they had gained 21%, and a year later they were up 26%. The 1979 Iranian hostage crisis triggered a modest 3% sell-off, yet stocks rose 26% over the following year. Even during the 2003 Iraq War, an initial 3% drop was followed by a 19% gain within six months and 27% after a year. Not every case rebounds quickly. After Russia’s invasion of Ukraine in 2022, markets were still down a year later, but the broader pattern is clear: geopolitical shocks usually cause temporary volatility rather than permanent damage. Volatility itself is nothing new. The market’s “fear gauge,” the VIX volatility index, has spiked above one standard deviation many times since 1987. Yet over that same period, the S&P 500 has continued climbing dramatically. Just before the 2008 financial crisis, the index stood around 1,560. Today it is roughly 6,800, despite the VIX surging above 30 on seven different occasions. The key reason long-term investors tend to succeed is time. Historically, the probability of losing money in an all-stock portfolio drops sharply… | Read More »
Month: March 2026
Tariffs and the trade deficit
On February 19th the Wall Street Journal reported that America imported a record amount of goods last year and that the U.S. trade deficit in December – the latest date for which figures are available – rose $70.3 billion. The goods trade deficit hit a record $1.24 trillion in 2025. These figures come as a surprise. The tariffs imposed by the Trump administration starting in April of last year were supposed to curtail imports and spur domestic production. So, what happened? Why hasn’t the trade deficit improved? At first glance, tariffs seem straightforward. Make imported goods more expensive and Americans will buy fewer of them. In theory, that should shrink the gap between what the U.S. buys from other countries and what it sells to them. But in practice, that’s not what’s happening. One reason is that other countries haven’t simply accepted the hit. Instead, many have doubled down on supporting their own exporters. Governments in Europe and Asia have rolled out subsidies, financing programs, and industrial policies to help domestic companies stay competitive. So even when tariffs raise costs, foreign producers often find ways to offset the impact and keep their goods flowing into global markets, including the U.S. Another key point is that tariffs tend to rearrange trade rather than reduce it overall. If imports from one country become more expensive, businesses often shift to suppliers in another country. The source changes, but the total volume of imports doesn’t necessarily decline. That means the overall trade deficit can remain largely intact, even if trade patterns look different. Economists have argued for years, with plenty of evidence, that trade deficits are driven by deeper macroeconomic forces. The U.S. tends to spend more than it saves, and when a country consumes more than it produces, it imports the difference. That imbalance shows up as a trade deficit. Tariffs don’t change national savings rates or deficit spending by both public and… | Read More »