Cutting through the noise to understand recent market events

Marek Krzeczkowski, Head of Investment Strategy & Quant explores what recent market volatility means for investors.

When news from Iran changes by the hour, it’s easy for investors to mistake short-term noise for meaningful signals. For long-term investors, moments like this can feel unsettling. But history shows they’re also when discipline matters most - and when staying invested can make the biggest difference.

Markets are digesting a surge in geopolitical tension and volatile energy prices. Equity markets have fallen, oil prices have jumped, and sentiment has become fragile. But while the situation is serious, markets are not yet behaving as if this is a full‑scale crisis.

What are the markets telling us so far?

The market’s reaction to recent events reflects increased geopolitical risk, with the Strait of Hormuz blocked and the risk of long-term distribution to oil flows equivalent to around 20% of global petroleum liquids consumption.

This looks like a shock not panic - Share prices have fallen but the current size and speed of the decline do not suggest a full-scale sell off. Longer term oil prices and inflation expectations remain reasonable.¹
The main impact is through energy prices - Disruptions to oil, gas and related markets (such as transport, trade, petrochemicals and fertiliser) matter most if they persist long enough to turn price spikes into supply shortages, particularly in Asia. (China and India together receive about 44% of the crude oil exports that transit the Strait of Hormuz).²
History offers perspective - Not every oil shock leads to lasting economic damage. Markets tend to react less to the initial jump in prices, and more to how long elevated prices last. Futures now show prices returning to around $80 by late 2026, instead of staying high for years.
The global economy is more resilient than in the past - Improved energy efficiency and a changing energy mix mean today’s economy is better placed to absorb short-term shocks than in previous decades. The US in particular, is less exposed that it was in earlier decades.

What matters from here?

The main concern now, is whether high energy prices will stay high enough to impact how much people buy, company profits and financial conditions.

Energy is a much smaller part of household spending, for example in the US, it’s making up around 3.7%, compared to around 6% in 1990 and 9% in 1980. That does remove the risk. Oil remains a global market, and higher prices still act like a tax on economic activity, but it does suggest that a few months of elevated prices are more likely to slow growth and raise inflation concerns, rather than cause a recession.¹

Another way to think about that is to look at global spending on oil relative to global economic output (GDP). By that measure, the world appears to be only partway toward what would typically be considered a full oil shock.

Oil prices would need to rise substantially higher (to around $130) to cross that threshold. That is not the most likely outcome, but it is a useful marker because it helps separate a severe but manageable shock from one that could lead to a more serious downturn.²

So far, markets are showing no signs of a broader financial crisis. Credit stress remains contained, and central banks are unlikely to hike rates aggressively because of this shock alone.

What does this mean for investors?

Periods like this test patience - but they also reward discipline.

Zooming out, this is a reminder to not let the news cycle drive investment decisions. History shows that reacting to fast-moving headlines often does more harm than good. Portfolios that are well diversified and built for the long term are designed to weather episodes of volatility like this.

Some caution remains sensible because the conflict could still intensify, and supply-chain pressure is still building. The current backdrop is serious, and the near-term risks around energy prices, inflation and sentiment are real. But markets tend to respond not just to the size of a shock, but to how long it lasts.

The current environment is challenging, and near-term volatility may continue. Although the rhetoric is still strong, rising recession risks and the political costs ahead of the US midterm elections in November increase the incentive to look for a way out.

Recent reports mention a new US effort for indirect talks and a ceasefire proposal. Progress is not assured as Iran’s public rejection shows that a deal has not been reached yet. But unless the energy shock becomes both larger and more persistent, this looks more likely to be a period of uncertainty rather than a reason to move away from a long-term investment plan.³

Want to understand more about managing your investments during moments like these? Read our five Smart strategies to navigate market volatility over the long term.

This commentary is provided for general information purposes only and does not constitute personalised financial advice. Investors should consider their own circumstances and seek professional advice where appropriate.

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