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 »
Author: Christian Peterson
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 »
Navigating AI’s swift sea change
Over the past year, Artificial Intelligence has shifted from being a buzzword to something that is actively changing how work gets done. This is true especially in technology, but increasingly it is affecting businesses in every sector of the economy. The speed at which AI is getting better at solving problems and improving workflow is astonishing. In software development, AI tools are now doing in minutes what used to take programmers weeks. These systems can generate, review, and refine large amounts of code. Their ability to communicate what they are doing and why has them acting like an additional team member. The result isn’t just marginal efficiency, it’s a step-change in output. Companies are launching products faster, testing ideas more quickly, and operating with smaller teams. In some cases, firms have reduced the size of their technical staff while increasing overall production. What’s important here is that this isn’t just about programmers. The same types of AI systems are being applied to legal research, financial modeling, marketing copy, customer service, and medical analysis. In other words, AI is beginning to perform tasks that used to require advanced degrees and years of training. AI systems aren’t progressing in a straight line, they’re compounding. Each new version tends to improve rapidly because it learns from larger data sets and more usage. Leaders in the field describe this moment as standing in front of a powerful wave that’s already forming offshore. It hasn’t fully hit yet, but it’s coming, and fast. From an economic standpoint, this raises two big questions. First, how many jobs will be displaced or reshaped? And second, how quickly can workers and companies adapt? History tells us that new technologies eventually create new industries and opportunities. The Industrial Revolution eliminated certain types of work but created entirely new sectors. The internet did the same. The difference today is the speed. If AI can absorb certain types of cognitive work… | Read More »
The rise of the individual investor
Since the 1980s, financial firms on Wall Street have increasingly relied on machines and algorithms to streamline trading and enhance their returns. Firms like Blackrock, State Street, Goldman Sachs, JP Morgan and others invested heavily in powerful computer hardware. They then aggressively recruited the top PhDs in math, logic, and computer science to design software to optimize trading results. By the 2010s up to 70% of all the trades on the New York and NASDAQ stock exchanges were executed by machine algorithms, with no human input other than the employee who wrote the code. As you might imagine, these firms are now using even faster machines, Artificial Intelligence, to assess risk and find inefficiencies in markets that they can exploit to gain a competitive edge. Further, these institutions are leveraging billions of dollars to make trades that move the market in one direction or the other. Given the size and influence of these institutional investors, it would seem that the small, retail investor can do nothing other than go along for the ride, hoping the big players don’t lead them off a cliff. But something strange happened as these machines became more powerful and ubiquitous. They gave the retail investor more influence than they ever had before. What began as a fringe phenomenon during the meme-stock mania of 2021 – when retail traders rapidly drove up shares of companies like GameStop and AMC – has now evolved into a more sustained and influential presence in markets. Analysts and market participants are saying that this shift is not temporary but indicative of a structural change in market participation. Retail investors, many of them day-traders or everyday savers, contributed a record amount of capital into stocks, ETFs, options, and other, less traditional, instruments during the year. According to a December 31, 2025 article in the Wall Street Journal, retail trades reached approximately 22% of overall trading volume in October, the highest level… | Read More »