Market Volatility During War: What 6 Weeks of the Iran Conflict Means for Your Investments
- Adon Beddoes
- Apr 15
- 7 min read
Markets do not like uncertainty. And over the past six weeks, uncertainty has been everywhere.
The conflict involving Iran has created a classic mix of rising oil prices, inflation concerns and shifting investor sentiment. For many investors, especially those living and working across borders, this period has felt uncomfortable. Not quite panic but certainly not calm either.
The challenge is not just understanding what is happening. It is understanding what actually matters for your investments.
What Is Driving Market Volatility Right Now?
At the heart of current market volatility sits one key factor.
Energy. The conflict has disrupted expectations around oil supply, particularly through concerns around the Strait of Hormuz. This is one of the most important shipping routes in the world, and even the hint of disruption is enough to move markets sharply.
Oil prices surged early in the conflict, briefly pushing into levels that immediately caught the attention of central banks and investors alike. Not because of the price itself but because of what it represents.
Higher oil prices act like a tax on the global economy. They increase costs for businesses, reduce consumer spending power, and put pressure on already stretched supply chains. This is why a regional conflict quickly becomes a global economic concern.
For a deeper look at how energy impacts inflation and growth, this breakdown from the International Monetary Fund is worth a read: Global Economy in the Shadow of War.
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How Has Market Volatility Affected Equities?
Equity markets have behaved in a way that is both familiar and slightly uncomfortable.
The initial reaction was a sell off. Investors moved quickly to reduce risk as headlines escalated and markets responded accordingly. This was not about company fundamentals. It was about uncertainty.
Then came the rebound.
As fears of immediate escalation eased, markets recovered part of their losses. This often surprises investors but it is very typical. Markets price in worst case scenarios quickly, then adjust as reality becomes clearer.
Now we are in a third phase.
Markets are no longer reacting purely to headlines. They are trying to assess the longer term impact on growth, inflation and corporate earnings. This is where things become more nuanced.
Some sectors have held up well. Energy companies benefited early on due to rising oil prices. Defensive sectors like healthcare have remained relatively stable. Meanwhile, more economically sensitive areas such as consumer goods and smaller companies have struggled.
In simple terms, the market has become more selective. And when markets become selective, diversification starts to matter more than ever.
Why Market Volatility Has Changed the Role of Bonds
Traditionally, bonds are meant to provide stability.
During periods of market stress, investors often expect bonds to rise as equities fall. This is the classic diversification benefit.
But this time, things have been slightly different. The reason comes back to inflation.
Rising oil prices have pushed inflation expectations higher. In response, bond yields have increased, which means bond prices have fallen. This has created a situation where both equities and bonds have struggled at the same time.
Not ideal.
However, as the situation has evolved and fears of further escalation have eased slightly, bonds have started to regain some of their defensive characteristics.
This shifting behaviour highlights an important point. Diversification still works but not always in the way people expect in the short term.
For more insight into how bonds behave during different economic cycles, Vanguard has a useful perspective here: Active Fixed Income Perspectives.
Is Gold Still a Safe Haven During Market Volatility?
Gold has done what gold tends to do.
It has moved higher during periods of peak uncertainty and then pulled back as markets stabilised. This reflects its role as a store of value rather than a growth asset.
But gold is not a perfect hedge.
It is influenced by several factors, including real interest rates and currency movements. When bond yields rise, gold can struggle even if geopolitical risks remain elevated.
This is why gold often feels like it is doing the right thing, just not always at the right time.
For investors, the key takeaway is that gold can play a role in diversification but it should not be relied upon as a single solution.
What Is Happening to Currencies During Market Volatility?
Currency markets have quietly played a significant role over the past six weeks.
The US dollar strengthened early in the conflict as investors moved towards perceived safe haven assets. This is a very typical reaction during times of uncertainty.
However, as the situation stabilised slightly and expectations around interest rates shifted, the dollar gave back some of those gains.
For expats, this matters more than most people realise.
Currency movements can have a direct impact on:
Income when earning in one currency and spending in another
Investment returns when portfolios are globally diversified
Property and education costs across different countries
This is where cross border planning becomes critical.
A portfolio that looks well diversified on paper can still carry significant currency risk if not structured properly.
How Is Market Volatility Impacting Inflation and Interest Rates?
This is arguably the most important piece of the puzzle.
Market volatility is not just about asset prices moving up and down. It is about what those movements signal for the broader economy.
Rising oil prices have pushed inflation expectations higher. Central banks, which had started to consider easing interest rates, are now being forced to reassess.
Lower rates may need to wait. Higher for longer has re-entered the conversation.
This creates a difficult environment for investors. Growth slows, borrowing costs remain elevated, and valuations come under pressure.
The knock on effects are wide ranging.
Mortgages, business investment and consumer spending all feel the impact.
For a broader view on global economic risks and inflation trends, the World Bank provides regular updates here: Global Economic Prospects.
What Does Market Volatility Mean for Expat Financial Planning?
This is where things become more personal.
Living and investing across borders adds an extra layer of complexity during periods of market volatility. It is not just about market movements. It is about how those movements interact with your life.
Consider a few common scenarios.
An expat earning in US dollars but planning to retire in Europe may see their purchasing power shift significantly due to currency movements. Someone with investments in multiple jurisdictions may face different tax implications as policies change.
And then there is timing.
Many expats have medium term goals such as property purchases, school fees, or relocation plans. Market volatility can create uncertainty around when and how to access funds.
This is why planning matters.
Not just investment planning, but proper financial planning that takes into account currency, taxation, and long term objectives.
The Biggest Investor Mistakes During Market Volatility
This is where experience really shows.
Periods like this tend to expose common behavioural mistakes.
The first is reacting emotionally to short term movements. Selling after a market drop or chasing performance after a rebound rarely ends well.
The second is over concentration. Investors who leaned heavily into one sector or region often feel the impact more sharply during periods of volatility.
The third is ignoring the plan.
A well structured financial plan is designed to account for periods like this. Changing strategy based on headlines often undermines long term outcomes.
And finally, there is the temptation to do something just for the sake of it.
Sometimes, the best decision is no decision at all.
So, What Should Investors Actually Do?
This is the question everyone wants answered. The reality is that the answer is often less exciting than people hope.
Stay diversified.
Ensure your portfolio aligns with your long term goals.
Review your exposure to different asset classes and currencies.
And most importantly, avoid making reactive decisions based on short term noise.
Market volatility is uncomfortable but it is not unusual. In fact, it is part of the investment journey.
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FAQ'S: Market Volatility and Investing
Should I change my investments because of the Iran conflict?
In most cases, no. Short term geopolitical events rarely justify major portfolio changes unless your personal circumstances have changed.
Why are both stocks and bonds falling at the same time?
Because inflation is rising. Higher inflation pushes interest rates up, which negatively impacts both asset classes.
Is now a good time to invest?
Timing the market is difficult. Periods of volatility can present opportunities but investing should always align with your long term plan.
How does this affect expats specifically?
Currency movements, cross border taxation, and differing economic conditions can all impact expat portfolios more significantly.
Should I hold more cash during volatile periods?
Holding some cash for flexibility is sensible, but too much can reduce long term returns, especially during inflationary periods.
Is gold a good hedge right now?
Gold can provide diversification, but it should not be relied upon as a primary investment strategy.
Will markets recover?
Historically, markets have recovered from geopolitical events. The timing is uncertain but long term trends have been positive.
Disclaimer
This article is for information purposes only and does not constitute financial, investment, tax or legal advice. Nothing contained herein should be relied upon as a recommendation, offer or solicitation to buy or sell any investment or to adopt any investment strategy. The views expressed are based on information available at the time of writing and may change without notice.
The value of investments and the income from them can fall as well as rise and you may not get back the amount originally invested. Past performance is not a reliable indicator of future results. You should seek regulated financial advice specific to your individual circumstances before making any financial decision.
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