Understanding market reactions to global events
With geopolitical tensions making headlines, it’s natural to feel uncertain about what it means for your investments.
Markets don’t like uncertainty. But history shows they don’t stay unsettled forever.
Let’s unpack what typically happens, and what it could mean for investors.
What happens when markets react to global conflict
Geopolitical events, like conflicts or political instability, often trigger short-term market volatility.
Markets tend to react quickly to uncertainty, with sharp movements as investors reassess risk and future economic conditions. These reactions are often driven more by sentiment and expectations than by immediate changes in economic fundamentals.
Geopolitical risks can affect growth, inflation, and trade flows, particularly when events disrupt energy markets or global supply chains.
In simple terms, markets move fast when the outlook becomes unclear.
What history tells us about market recovery
Looking at past geopolitical events can help put short-term market movements into perspective.
Analysis of major events since 1945 shows that while markets often react quickly, they don’t follow a consistent pattern of prolonged decline. In many cases, recoveries have happened sooner than investors might expect.
- 9/11 attacks (2001): Markets fell sharply after reopening, with the S&P 500 dropping around 12%. Those losses were recovered within about a month of trading.
- Gulf War (1990–1991): Markets declined roughly 17% during the lead-up to conflict. Once the situation became clearer, markets began to recover.
- Cuban Missile Crisis (1962): Despite heightened global tension, markets fell around 6% and recovered within weeks.
- Russia–Ukraine conflict (2022–present): Early reactions included volatility and rising energy prices. Over time, markets began to refocus on broader economic factors like growth and inflation.
Why markets have historically recovered
While the initial reaction can feel unsettling, markets have shown resilience over time.
Research suggests that geopolitical shocks often lead to temporary declines, followed by recovery as uncertainty fades.
There are a few reasons for this:
1. Economies adapt
Businesses and economies adjust to new conditions, whether that’s shifting supply chains or changing trade patterns.
2. Markets price in new information quickly
Once uncertainty becomes clearer, markets tend to stabilise as expectations reset.
3. Long-term drivers remain intact
Innovation, population growth, and productivity continue regardless of short-term disruptions.
This doesn’t mean every event is the same, but it does highlight a consistent pattern, short-term volatility, followed by longer-term recovery.
What this means for Australian investors
Australia is closely connected to global markets through trade, commodities, and financial systems.
That means global geopolitical events can impact Australian investments, particularly through:
- Commodity prices
- Currency movements
- Global share markets
At the same time, diversification plays an important role.
Raiz portfolios invest across a mix of asset classes and global markets, which can help spread risk rather than relying on a single region or sector.
Staying focused during uncertain times
It can be tempting to react when markets move sharply. But reacting to short-term events can be difficult to get right.
The reality is:
- Market movements are unpredictable in the short term
- Recoveries often happen when least expected
- Missing those recoveries can impact long-term outcomes
All investments carry risk, and values can rise and fall over time. That’s why having a long-term approach matters.
A steady approach can help
Geopolitical events will continue to happen. They are part of how global markets behave.
What tends to matter more is how investors respond.
Focusing on consistency, diversification, and a long-term mindset can help you stay on track, even when headlines feel uncertain.
Markets don’t ignore geopolitical risks, but they also don’t stay defined by them.
Over time, resilience has been a consistent theme.
For investors, the challenge is not predicting every event, but staying invested through them.
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Important Information
This blog has been issued by Instreet Investment Limited (ACN 128 813 016 AFSL 434776) as Responsible Entity of the Raiz Invest Australia Fund (ARSN 607 533 022) and has been prepared without taking into account your objectives, financial situation or needs. Before acting on such information, you should conduct your own review or consult a financial advisor before making a decision to invest. Please read the relevant Product Disclosure Statement and any associated reference documents before making an investment decision. In accordance with the Design and Distributions Obligations, we maintain Target Market Determinations for our Funds. All documents can be found on the Raiz website www.raizinvest.com.au, or calling the Customer Support team on 1300 754 748. Please note that past performance is not a reliable indicator or guarantee of future performance. Historical returns, forecasts, and market commentary are provided for general informational purposes only. All investment carries risk and may result in loss of capital.
