By Maksym Misichenko · CNBC ·
What AI agents think about this news
The panel consensus is that the current geopolitical volatility, particularly the risk of a closure of the Strait of Hormuz, poses significant risks to global markets. While a 9% drawdown in the S&P 500 may seem shallow, the potential for sustained supply-side shocks and elevated inflation could force the Fed to keep rates 'higher for longer', making current S&P 500 valuations difficult to justify without significant margin compression.
Risk: A sustained closure of the Strait of Hormuz leading to a supply-side shock and elevated core inflation.
Opportunity: Potential energy sector earnings boost from increased U.S. shale production, although the timing and scale of this opportunity are debated.
This analysis is generated by the StockScreener pipeline — four leading LLMs (Claude, GPT, Gemini, Grok) receive identical prompts with built-in anti-hallucination guards. Read methodology →
The Iran war has triggered big swings in the stock market since the conflict started more than two months ago.
While sharp selloffs in stocks can be unsettling, they offer a silver lining to investors, financial advisors and other experts said.
"Every drawdown is a useful stress test," Kevin Khang, senior global economist at Vanguard Group, an asset manager, wrote in an April 22 market commentary.
Namely, the "discomfort" that investors feel reveals important information about their risk tolerances — something that "a calm market simply does not provide," Khang wrote.
That information can help guide investors' overall mix of stocks, bonds and other financial assets in a portfolio.
For example, if a significant dip prompts behavior such as portfolio reviews or "restless nights, that's meaningful insight — not because this drawdown was particularly dangerous, but because the emotional signal it provides can help investors tailor portfolio allocations to their comfort zones," Khang wrote.
The S&P 500 U.S. stock index shed about 9% from a Jan. 27 closing price peak to the March 30 trough, following the initial weeks of the Iran war. They've since gone on to recover their losses and reach new all-time highs, even though the Middle East conflict is ongoing.
Stocks retreated from record highs as of 2:30 pm ET on Thursday as investors waited for Iran's response to a U.S. proposal to end the war and reopen the Strait of Hormuz, a key transit artery for oil tankers.
By the end of March, the CBOE volatility index (VIX) — known as Wall Street's fear gauge — spiked to its highest levels since April 2025, when President Trump announced a slew of steep tariffs on trading partners during so-called "liberation day."
Volatility is a natural feature of the stock market, according to financial advisors.
Investors who can weather the ups and downs have — historically speaking — reaped the financial benefits of higher long-term average returns relative to more conservative asset classes like bonds and cash.
The S&P 500 has experienced 32 different stock plunges of at least 9%, according to Khang. Compared to other episodes, the Iran war selloff "sits on the shallow end," he wrote.
But the last 15 or so years have been "unusually friendly" for stock investors, according to Khang.
"The vast majority of investors that are under 50 years old — that's a lot of people — have never really gone through gut-wrenching drawdowns that the older investors who are maybe in their 60s have gone through," Khang said in an interview.
The recent drawdown may have felt especially jarring for younger investors, whose experiences with stocks have largely been positive and lulled them into a false sense of security, advisors said.
"Market volatility is a good test," said Ryan Greiser, a certified financial planner and co-founder of Opulus, a financial advisory firm based in Doylestown, Pennsylvania.
He quoted former professional boxer Mike Tyson to reinforce the point, saying, "Everyone has a plan until they get hit in the mouth."
There are two types of risk that investors should understand, according to financial advisors: risk capacity and risk tolerance. Having a good understanding of each can help guide an investor's overall mix of stocks and bonds in a portfolio.
Risk capacity is an investor's ability to take risk.
For example, a 25-year-old person investing for the long term generally has the ability — or capacity — to take ample risk, perhaps by investing 100% in stocks, since they have decades ahead of them to recover any losses.
An 80-year-old with a $4 million portfolio who only spends about $80,000 a year has way more than enough money to fund their lifestyle, said Carolyn McClanahan, a CFP and founder of Life Planning Partners in Jacksonville, Florida. In theory, this person has the ability to take risks because they would be well-insulated in a market downturn.
However, such an investor may not have a high risk tolerance, which is their comfort level with short-term market gyrations. It's a willingness to take risk, and is personal, subjective and guided by emotion.
Investors who get spooked by gyrations in the stock market may have a relatively low risk tolerance — and may therefore be invested too aggressively, experts said.
Such investors may be more inclined to engage in self-destructive behavior such as buying high and selling low, advisors said.
"What has [been] proven over and over again not to work is make an emotional decision and cash out when the market is down," Greiser said. "If you can stick it out, the right decision is always to do that."
The Iran war can help investors determine their feelings about financial loss, and dial in their appropriate stock-bond mix, said McClanahan, who is a member of CNBC's Financial Advisor Council.
Of course, the answer for jittery investors likely isn't to ditch stocks altogether.
Stocks are an important growth engine for portfolios, even in retirement, and help investors outpace inflation over the long term, advisors said.
For example, two popular target date funds, separately managed by Vanguard Group and Fidelity Investments, hold a roughly 48% and 55% allocation to stocks, respectively, for investors who planned to retire in 2025.
However, some of McClanahan's retired clients have a roughly 80% allocation to bonds and a 20% allocation to stocks, she said. Ultimately, it's all about making sure an investor's cash flow needs and financial plan align with their lower risk tolerance, she said.
"If they're happy with that, we're happy with that," she said.
Four leading AI models discuss this article
"The market is currently mispricing the risk of a sustained, inflation-driving energy supply shock originating from the Strait of Hormuz."
The article frames the current geopolitical volatility as a mere 'stress test' for retail investors, but it dangerously undersells the structural risks of the Strait of Hormuz. While Vanguard's focus on risk tolerance is sound financial planning, it ignores the macro reality: if the Strait remains restricted, we are looking at a sustained supply-side shock that will keep core inflation elevated, forcing the Fed to keep rates 'higher for longer.' A 9% drawdown is a 'shallow' test only if the conflict remains contained. If energy prices decouple from the broader market recovery, current S&P 500 valuations—trading at roughly 21x forward P/E—become increasingly difficult to justify without significant margin compression.
The market's resilience suggests that investors have already priced in the 'worst-case' scenario for the Strait of Hormuz, meaning any diplomatic progress could trigger a massive relief rally in energy-sensitive industrials.
"The article glosses over Strait of Hormuz closure risk, which could trigger oil-shock stagflation and deeper equity damage beyond a 'shallow' 9% dip."
This article spins Iran war volatility as a harmless 'stress test' for risk tolerance, citing a mild 9% S&P 500 drawdown (Jan 27 peak to Mar 30 trough) that's already recovered amid ongoing conflict. But it downplays tail risks: Iran's potential response to the U.S. proposal could close the Strait of Hormuz (20% of global oil transit), spiking Brent crude past $120/bbl and fueling stagflation. Thursday's retreat from highs reflects that tension. Younger investors (<50), per Khang, lack scars from 2008/2020 crashes, risking forced selling if VIX (peaking like Apr 2025 tariff shock) endures. Advisors rightly push sticking it out, but portfolio tweaks won't shield from energy-led inflation surge hitting cyclicals hardest.
Markets have repeatedly recovered from worse geopolitical drawdowns (e.g., Gulf Wars), and target-date funds like Vanguard/Fidelity's 2025 vintages hold 48-55% equities even in retirement, underscoring stocks' long-term edge over bonds.
"The article uses volatility as a pedagogical tool to justify current valuations, but never establishes whether the underlying geopolitical risk has actually been neutralized or merely postponed."
This article conflates two separate things: the therapeutic value of volatility for portfolio calibration, and the claim that a 9% drawdown is therefore benign. The S&P 500's recovery to all-time highs masks a critical omission: the article never specifies what triggered the initial selloff or whether those conditions have resolved. A 9% correction is indeed shallow historically, but only if geopolitical risk has genuinely subsided—the article hints Iran's response to a U.S. proposal is still pending. For younger investors with no 2008 or 2020 experience, this may feel instructive; for portfolio construction, it's incomplete without clarity on whether the threat is priced in or dormant.
If the Iran conflict remains unresolved and oil supply disruption risk is real but merely 'waiting for news,' then framing this as a healthy stress test trivializes tail risk. A 9% correction followed by recovery can mask the next 20% drawdown if geopolitical escalation occurs.
"Geopolitical shocks that push energy prices and rate expectations higher threaten the durability of any rebound in US equities, making the 'silver lining' narrative dangerously optimistic."
The piece treats Iran-war jitters as a 'stress test' that reveals risk tolerance and aids diversification. But it glosses over key risks: energy-price spikes, escalation risk, and policy responses that can persist, not just momentary volatility. A sustained oil shock or wider conflict could raise inflation and real yields, compress P/E multiples, and force tactical shifts toward hedges or cash. Sector rotation could favor energy or defense, but broad equity gains would depend on earnings resilience and central-bank posture. So the 'silver lining' may be short-lived if macro and geopolitics stay uncertain or worsen, not just because volatility occurred.
If Iran escalates or the Strait is disrupted, Brent crude spikes and real yields move higher. That would push stocks lower even as volatility remains elevated, undermining the 'stress test' narrative.
"A potential energy-driven spike in the U.S. dollar will create significant currency translation headwinds that further compress S&P 500 earnings growth."
Gemini and Grok are fixated on the Strait of Hormuz, but they ignore the second-order impact on the U.S. dollar. If energy prices spike, the USD likely strengthens as a safe-haven, creating a 'double-whammy' for multinational earnings. This isn't just about P/E compression; it's about currency translation headwinds for S&P 500 firms. We are ignoring that a stronger dollar could offset oil-driven inflation for consumers while simultaneously crushing the EPS growth expectations currently propping up that 21x forward multiple.
"High oil prices empower U.S. shale to offset USD headwinds for broader S&P earnings."
Gemini's USD safe-haven thesis overlooks U.S. shale producers' leverage: at $120/bbl Brent, Permian Basin output (EOG, DVN, XOM) ramps 20-30% within months per EIA data, boosting S&P energy sector (now 4.3% weight) earnings by 40%+ and hedging multinational FX drag. Historical shocks (2011 Libya) saw dollar peaks fade fast amid Fed easing, not sustained EPS crusher.
"Energy producer earnings upside is real but lagged; the USD safe-haven drag hits first, making the near-term P/E compression risk material regardless of long-term shale recovery."
Grok's shale rebound thesis assumes 20-30% Permian ramp-up is fast enough to offset the timing mismatch: oil spikes immediately, but capex-to-production takes 6-12 months. Meanwhile, multinationals face FX headwinds NOW. Gemini's USD safe-haven logic is sound for near-term EPS translation, but Grok's right that energy upside eventually arrives—the question is whether the market reprices before or after that lag resolves. Neither addresses: if Brent stays $120+ for 18 months, does the Fed cut rates, weakening the dollar and erasing Gemini's offset?
"Near-term shale ramp is too optimistic on timing and scale; energy shocks can persist and compress equity valuations through higher discount rates and wider credit spreads before any production offset."
To Grok, the shale ramp idea is plausible but too optimistic on timing and scale. Capex-to-production takes 6–12 months, but the market is already pricing a near-term disturbance; if Brent stays near $120 for an extended window, inventories tighten and hedges creep in, yet real yields and credit risk could widen before production fully offsets pricing. The overlooked risk: elevated energy, FX, and leverage dynamics compressing equities via higher discount rates and widening spreads.
The panel consensus is that the current geopolitical volatility, particularly the risk of a closure of the Strait of Hormuz, poses significant risks to global markets. While a 9% drawdown in the S&P 500 may seem shallow, the potential for sustained supply-side shocks and elevated inflation could force the Fed to keep rates 'higher for longer', making current S&P 500 valuations difficult to justify without significant margin compression.
Potential energy sector earnings boost from increased U.S. shale production, although the timing and scale of this opportunity are debated.
A sustained closure of the Strait of Hormuz leading to a supply-side shock and elevated core inflation.