Record Highs in the S&P 500 Show Selling on War Headlines Is Usually a Mistake

The Iran war has been on the minds of investors since U.S. airstrikes on Iran began on Feb. 28. The economically vital Strait of Hormuz has largely been closed, shutting off oil and gas shipments to markets around the world that depend on them. Oil prices have spiked. All this bad news and global uncertainty might have driven nervous investors to sell their stocks and flee to the perceived safety of cash or bonds.

And yet stocks have rebounded. On Thursday, the S&P 500 index closed at a record high of 7,041.28. After a sluggish start to 2026, the S&P 500 is now up 2.9% year to date and has gained 11% since hitting a low on March 30 during the Iran conflict.

War is a tragedy, and it's understandable that people feel worried, saddened, and preoccupied by the distressing news from war headlines. But the Iran war, like other conflicts in the past, is proving to be a bad reason to hit "sell" on your stocks.

Let's look at a few reasons why the stock market has remained resilient amid the Iran war -- and why peace could bring more good news for investors.

Image source: Getty Images.

Wars (mostly) do not damage the stock market

War causes terrible human suffering to the people involved, but the economic consequences to the rest of the world are often limited. Investors often get fearful when a war starts, and wars can cause short-term volatility in stock prices. But in the long run, the stock market tends to adjust to the news headlines and keep moving up for unrelated reasons.

According to research from Fidelity, a close connection doesn't exist between recent wars and long-term stock market performance. This seems to hold true whether a conflict involves smaller countries like Kosovo or Iraq, or major exporters of energy and food, like Russia and Ukraine. For example, ever since Russia invaded Ukraine in February 2022, the S&P 500 is up by more than 60%.

^SPX data by YCharts

This general historical trend is a powerful reason why selling stocks based on war headlines is often a bad move for long-term investors. Most wars are relatively "small" compared to the global economy.

Wars don't always hurt corporate earnings

Another big reason not to sell stocks during a war is the importance of corporate earnings. Wanting to own a share of future corporate profits is the biggest reason to buy stocks. And most of the time, wars don't stop companies from earning money.

The Iran war has shown the world frightening video footage of drone strikes on buildings, and oil and gas infrastructure on fire. The oil companies that own that energy infrastructure might face a short-term hit to their profitability. But there is plenty of good news happening for other companies throughout the global economy. Most companies are not affected by the latest destructive conflict in the world.

According to Bloomberg, Wall Street analysts expect 12% earnings growth from the S&P 500 for the current quarter. Fidelity research says that S&P 500 profit margins were at new highs of 15% as of early April.

Bonds and cash are not always "safer" than stocks

Even if you decide to sell stocks because it feels like the world is in turmoil and you fear for the future of the economy, where else will you put your money? Bonds are not always a safe haven during times of war.

For example, the U.S. 10-year Treasury bond yield went up from 3.95% on Feb. 27 before the Iran war to 4.44% on March 27. When bond yields go up, bond prices go down. The price of the Vanguard Total Bond Market Index Fund ETF (NASDAQ: BND) declined by about 3% in the month after the Iran war started.

Wars tend to be bad for bond investors because they're expensive and lead governments to borrow more.

What about selling stocks and moving your money into cash? If you move to cash, your money won't grow. Even the best high-yield savings accounts these days are only paying about a 4% APY. That rate might help your money barely stay ahead of inflation, but it won't grow enough to help you reach your long-term financial goals.

History doesn't always repeat itself. The world is unpredictable and the future is unwritten. But based on past trends and the current state of the stock market, the most reasonable, level-headed move for most stock investors during times of war and geopolitical turmoil is to just hold on to your stocks.

Don't sell stocks based on panic or an overreaction to daily news, no matter how distressing. The war news headlines likely won't lead to long-term hits to your portfolio. Selling stocks too soon for the wrong reasons can cause you to miss out on big future opportunities.

Ben Gran has positions in Vanguard Total Bond Market ETF. The Motley Fool has positions in and recommends Vanguard Total Bond Market ETF. The Motley Fool has a disclosure policy.