Q1: Headline-driven volatility returns
The first quarter of 2026 was unsettled for investors, as both the S&P/TSX Composite Index and S&P 500 Index touched record highs early in the quarter, but lost momentum in March as military developments in the Middle East affected investor sentiment.
The recent market action reinforces the view that headline-driven volatility may continue,1 particularly as geopolitical tensions in the Middle East remain fluid and unpredictable. From an investment standpoint, we believe it’s important to step back from the noise and focus on what actually matters for asset prices.
Disruptive or destructive?
When major global events occur, an important question is whether they create lasting economic damage or mostly short-term disruption. History shows that the vast majority fall into the disruptive category—creating short-term volatility but causing limited lasting damage to the global economy or corporate earnings. Market declines linked to such events tend to reverse once uncertainty begins to fade.2
Markets often recover faster than expected
Looking back at past geopolitical events, history shows that markets often fall first and recover quickly after geopolitical events. On average, the S&P 500 has bottomed roughly 19 days after the initial shock and returned to breakeven in about 40 days. While this outcome isn't guaranteed, this pattern reflects a consistent behavioural response: investors tend to pull back in the face of uncertainty, then return as clarity improves.
Short-term pain, longer-term gain
In the first few months after major events, markets are often more volatile and can post modest losses. However, 12-month forward returns have generally been positive,3 except when the shock coincides with—or triggers—a true fundamental shift, such as recession. In other words, near-term reactions skew negative, but longer-term outcomes tend to be more constructive.
Staying focused during uncertain periods
This conflict remains highly unpredictable, with a range of potential outcomes. But these developments are outside investors’ control. What is within our control is ensuring portfolios are positioned thoughtfully to navigate a broad set of scenarios.
It’s worth remembering this isn't the first geopolitical event investors have had to navigate. While the ultimate “endgame” may be difficult to see right now, history suggests many such episodes are relatively short-lived in market terms.4 Investors who avoid overreacting to headlines and stay focused on their long-term plans can be rewarded over time. Periods of volatility can be uncomfortable, but they've created opportunities for disciplined investors.
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Sources:
1https://www.equiti.com/sc-en/news/market-news/geopolitical-tensions-weigh-on-us-stocks-oil-and-yields-advance/#:~:text=Geopolitical%20instability%20in%20the%20Middle,and%20sustained%20high%20interest%20rates.&text=Both%20Brent%20and%20West%20Texas,Union%2C%20and%20the%20United%20States.
2https://www.investopedia.com/the-impact-of-war-on-the-stock-markets-what-investors-need-to-know-11918505. 3https://www.theglobeandmail.com/investing/markets/stocks/NVDA/pressreleases/799708/moving-past-geopolitical-tensions-why-stocks-are-poised-for-a-strong-recovery/.
4https://www.investopedia.com/the-impact-of-war-on-the-stock-markets-what-investors-need-to-know-11918505
The S&P 500 Index tracks the performance of 500 of the largest publicly traded companies in the United States. The S&P/TSX Composite Index is the benchmark Canadian index that tracks the performance of companies listed on the Toronto Stock Exchange (TSX). It is not possible to invest directly in an index.