Geopolitical shocks rarely move through financial markets and household budgets in the same way or at the same speed. The current conflict involving Iran illustrates this divergence clearly. While global investors have watched developments closely, market performance has remained relatively resilient. For U.S. consumers, however, the economic consequences are likely to be far more immediate and tangible—particularly through higher energy costs and the inflationary pressures that follow.
Derek Horstmeyer, a finance professor at George Mason University’s Costello College of Business, recently highlighted the striking contrast between geopolitical disruption and financial market behavior. In his view, the muted response from U.S. equities and the dollar underscores how structurally different today’s market environment is compared with previous decades.
Even amid escalating tensions and the closure of the Strait of Hormuz—one of the world’s most critical oil transit routes—financial markets have demonstrated surprising stability. The waterway is responsible for roughly 20% of the global oil supply, and its shutdown has pushed crude prices above $100 per barrel. Historically, a supply shock of that magnitude would have triggered a significantly larger drawdown in U.S. equities. Yet over the past month, the S&P 500 has declined only modestly.
For wealth advisors and registered investment advisors (RIAs), the current situation offers a valuable reminder: modern market composition has meaningfully altered how geopolitical events translate into equity performance.
Why the S&P 500 Is More Resilient to Oil Shocks
Horstmeyer points out that the S&P 500 is far more insulated from oil-price shocks today than it was half a century ago. The shift reflects the transformation of the U.S. equity market itself.
Decades ago, industrial and energy companies dominated the benchmark index. Firms such as General Electric and Exxon Mobil represented large portions of market capitalization and were deeply tied to commodity cycles and industrial production. When oil prices spiked or global supply chains were disrupted, the impact flowed directly into corporate earnings and equity valuations.
Today’s index is fundamentally different. Market leadership is concentrated among technology giants and digital platform companies whose business models have minimal direct exposure to crude oil prices. Software, cloud infrastructure, digital advertising, and artificial intelligence services drive a significant share of index earnings. These sectors rely more heavily on data centers and computing capacity than on physical commodities.
As a result, while energy price spikes still affect the broader economy, they do not translate as directly into S&P 500 earnings risk as they once did. For advisors constructing portfolios, this structural shift explains why geopolitical crises tied to energy supply may produce smaller equity drawdowns than historical precedent might suggest.
The Consumer Impact Is More Immediate
The resilience of equity markets does not mean the economic impact is negligible. In fact, the opposite is likely true for consumers.
Horstmeyer emphasizes that households are far less insulated from energy shocks than large-cap technology companies. Even if the geopolitical conflict de-escalates quickly, oil supply chains require time to normalize. Disruptions in shipping, refining, and distribution can take weeks to unwind.
In practical terms, that means gasoline prices are likely to remain elevated in the near term. U.S. consumers could face fuel costs in the $3 to $4 per gallon range for at least the next month, depending on regional supply conditions.
Higher fuel costs ripple through the entire economy. Transportation expenses rise, logistics costs increase, and businesses pass a portion of those costs along to customers. The result is renewed inflationary pressure at a time when policymakers are still navigating the aftermath of the previous inflation cycle.
For advisors working with clients, this dynamic creates a familiar but important tension. Financial markets may remain stable while client budgets experience strain. Communicating that distinction is critical to maintaining perspective during periods of geopolitical uncertainty.
Potential Market Volatility Still Exists
Although the S&P 500 has remained relatively steady so far, Horstmeyer cautions that markets are not immune to further volatility. A correction of 10% to 20% remains possible if the conflict expands or if energy prices remain elevated for an extended period.
However, even in that scenario, the economic burden may still fall more heavily on consumers than on diversified portfolios. Higher energy costs affect daily expenses immediately, while equities may recover more quickly once geopolitical risk subsides.
For RIAs, this underscores the importance of portfolio diversification and long-term positioning rather than reactive trading during geopolitical events.
The Dollar’s Persistent Safe-Haven Status
Another notable feature of the current environment is the continued strength of the U.S. dollar. Historically, geopolitical turmoil often drives global investors toward perceived safe-haven assets. In many cases, that capital flows directly into U.S. markets and the dollar.
Horstmeyer describes this phenomenon as a recurring pattern: even when global instability involves U.S. policy or military action, international capital still gravitates toward dollar-denominated assets.
The explanation lies largely in the dollar’s role as the world’s primary reserve currency. Global trade, sovereign reserves, and international finance remain heavily denominated in dollars. Despite periodic speculation about alternatives, no other currency currently offers the same combination of liquidity, stability, and institutional backing.
As a result, during periods of uncertainty investors frequently increase allocations to U.S. Treasurys and dollar assets. That demand can strengthen the currency even when geopolitical tensions originate from U.S. actions.
Horstmeyer expects the U.S. Dollar Index to remain near the 100 level while the conflict continues. For advisors managing globally diversified portfolios, this environment reinforces the dollar’s structural advantage during periods of market stress.
Gold’s Continued Appeal as a Defensive Asset
At the same time, traditional safe-haven assets continue to attract attention. Gold has historically performed well during periods of geopolitical instability and elevated inflation expectations.
Horstmeyer believes gold prices could remain above $5,000 per ounce while global uncertainty persists, supported by its reputation as a store of value. Institutional investors, central banks, and retail investors often increase gold allocations when currency volatility and geopolitical risks rise simultaneously.
For wealth advisors, the renewed focus on gold highlights the role of alternative assets in portfolio construction. While gold does not generate income and can be volatile over shorter horizons, it may serve as a hedge against extreme macroeconomic scenarios.
The Evolving AI Landscape
Beyond geopolitics and commodities, another major theme shaping financial markets is the rapid evolution of artificial intelligence. Horstmeyer has previously suggested that the AI race could resemble earlier technology competitions, such as the streaming wars, in which only a handful of companies ultimately capture significant market share while others fall behind or consolidate.
However, recent developments have caused him to reconsider aspects of that view.
Advances by AI research firms, particularly Anthropic, suggest that multiple companies may carve out distinct niches rather than converging around a single dominant platform. Anthropic’s flagship model, Claude, has rapidly improved in capability, closing performance gaps and in some cases surpassing competing systems.
These developments illustrate how quickly the AI landscape can shift. For investors, technological leadership in this space remains fluid, and market expectations may evolve just as quickly.
AI’s Disruptive Impact on Software Markets
Recent AI product releases have also triggered volatility in other parts of the technology sector. When companies introduce AI-powered development tools and automation platforms, investors often speculate about their impact on existing software providers.
In several recent instances, the launch of AI-based productivity tools triggered sell-offs in software stocks. The market reaction reflected concern that customers might reduce or cancel traditional software subscriptions in favor of AI-driven alternatives capable of performing similar tasks.
This dynamic highlights a broader theme: AI is not only a growth opportunity but also a potential disruptor of established business models.
For advisors evaluating technology investments, understanding both sides of that equation is essential. Some firms may benefit from AI adoption, while others could face margin pressure or declining demand if their products become easier to replicate through AI tools.
Infrastructure Buildouts and Historical Parallels
Horstmeyer compares the current wave of AI infrastructure investment to previous periods of technological expansion, including the fiber-optic boom of the late 1990s and the railroad buildout of the 19th century.
In each case, companies invested heavily in infrastructure—often far ahead of proven demand. While some of those investments ultimately proved excessive, they also created foundational networks that enabled future economic growth.
The same pattern may emerge in AI. Technology companies are currently investing billions of dollars into advanced microchips, data centers, and high-performance computing clusters. Even if demand forecasts prove overly optimistic, the resulting infrastructure could still become a valuable resource for future innovation.
For long-term investors, this perspective suggests that overinvestment does not necessarily mean the technology itself is overvalued or unsustainable. It simply reflects the early stages of a transformative technological cycle.
Lessons From the Dot-Com Era
That said, history also offers important cautionary lessons. Previous technological revolutions often included speculative bubbles before settling into sustainable growth.
Notably, many of the pioneering companies from the first dot-com era did not survive. Even firms that ultimately became long-term winners experienced extreme volatility. Amazon, one of the most successful technology companies in history, saw its share price decline by more than 90% from peak to trough after the bubble burst in the early 2000s.
This historical precedent reminds investors that innovation cycles rarely unfold smoothly. Breakthrough technologies can coexist with speculative excess.
Maintaining Discipline in Uncertain Markets
Horstmeyer describes himself as naturally skeptical about the long-term trajectory of AI and somewhat pessimistic by temperament. That outlook contrasts with market strategists who maintain consistently bullish views.
Yet even with that skepticism, he cautions against attempting to time a potential market bubble through aggressive short selling. Identifying overvaluation is one challenge; predicting when sentiment will reverse is another entirely.
For advisors and portfolio managers, the key takeaway is discipline. Markets can remain elevated longer than many investors expect, particularly when transformative technologies capture investor enthusiasm.
Rather than attempting to call the exact turning point, Horstmeyer prefers a more pragmatic strategy: participating in market growth while remaining vigilant about risk. That approach involves periodically rebalancing portfolios, trimming positions that become excessively concentrated, and adjusting allocations if signs of instability begin to emerge.
Implications for Wealth Advisors
For RIAs navigating today’s market environment, several themes stand out.
First, geopolitical shocks may have a smaller direct impact on equity markets than in previous decades due to structural shifts in index composition. However, those events can still affect clients through inflation and higher living costs.
Second, the dollar’s global reserve status continues to reinforce its safe-haven role during periods of uncertainty. Currency dynamics remain a critical factor for globally diversified portfolios.
Third, the AI revolution is likely to produce both extraordinary innovation and significant market volatility. Advisors should expect rapid shifts in competitive positioning among technology companies.
Finally, maintaining a disciplined investment process remains essential. Technological revolutions and geopolitical crises alike can create periods of heightened uncertainty. For long-term investors, careful portfolio management, diversification, and measured risk-taking remain the most reliable tools for navigating these cycles.
