Despite political tensions running high, investment markets were steady through the first two months of 2026. The Dow Jones Industrial Average closed at an all-time high above 50,000 in mid-February and the average 30-year mortgage rate dipped below 6% for the first time since 2022. All that changed when the United States and Israel started bombing Iran at the end of February. Investment returns for the month of March gave up all the gains of the first two months of 2026, and then some.
The primary economic concern from the war in Iran has been the price of oil and its impact on inflation. The global economy has experienced oil shocks periodically over the past 50 years. While the shock of $4 per gallon gas prices has an immediate impact on consumer sentiment, investment markets have powered through previous oil crises. Reliable access to affordable oil is critical for global economic growth and most previous conflicts impacting oil markets have been de-escalated in months, not years. Russia’s war with Ukraine is an exception.
The stock market has proven to be a solid long-term investment to build wealth. Volatility of stock prices is a given – it’s a known characteristic of the investment process. Investors react to the current news cycle and with the onset of war in Iran, some segments of the stock market declined by more than 10% on expectations that the conflict will negatively impact long-term economic growth. History suggests that investment markets will recover and move higher after tensions in the Middle East subside. This is why maintaining a diversified investment strategy in the face of uncertainty has rewarded long-term investors.
With a temporary ceasefire and negotiations underway between the US and Iran, as well as Israel and Lebanon, investment markets have started to recover. The quarterly earnings season is underway, and corporations are projected to report double-digit earnings growth for the 1st quarter of 2026, after rising approximately 13% in 2025. Interest rates moved sharply higher in March as expectations for inflation grew, but rates stabilized and started to decline again as the second quarter began.
Prior to the war in Iran, economic growth was expected to increase in 2026 due to stimulus from the One Big Beautiful Bill Act for companies and individual taxpayers, artificial intelligence spending, deregulation and pent-up mergers and acquisition activity. While hiring of new employees has softened, the US Labor market remains at full employment levels and resilient US consumers continue to spend.
In 2025, the impact of tariffs on economic growth was the big worry for investors. “Liberation Day” was one year ago and the announced tariffs had a greater negative impact on investment markets than the bombing in Iran has had. Markets fully recovered and moved higher in 2025 despite the expected impact of higher tariffs. Time will tell if the war with Iran and higher energy costs are a temporary setback or a more enduring drag on economic growth in 2026.
Christopher Borden is a financial advisor and Managing Partner with Canby Financial Advisors, LLC, an Investment Adviser registered with the U.S. Securities & Exchange Commission. Chris can be reached at 508.598.1082 or cborden@canbyfinancial.com. SEC registration does not constitute an endorsement by the SEC nor a statement about any skill or ability. The information provided should not be construed as financial, tax or legal advice. Past performance is no guarantee of future results.
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