Trump’s Iran Escalation Tanks Stocks Again: 5 Urgent Moves Before It Worsens
Written by
John Csiszar
Edited by
Angela Corry
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Stock markets took a tumble in March and April because of the Trump Administration’s escalation of the Iran war. While the White House continually assures citizens and investors that the war will end soon, and despite President Donald Trump’s deadline to reopen the waterway, the ongoing effects of the shutdown of the Strait of Hormuz may persist according to Barron’s.
The combination of geopolitical uncertainty, rising energy prices and fears that inflation may drag down both consumer and business spending have turned the U.S. stock markets into a volatile place. With all of these troubling variables in the air, here are some practical steps you can take now to help protect your portfolio.
Review Your Exposure to Energy-Reliant Sectors
Industries that rely on low energy costs to maintain profit margins are struggling. According to Fitch Ratings, airlines, cruise lines and manufacturing companies tend to suffer when the cost of their basic materials, such as oil, rise sharply. If the Iran conflict continues or even worsens, rough times could lie ahead for these types of stocks.
Consider Maintaining Positions in Defensive Holdings
Ironically enough, holding oil stocks during the current uncertainty may prove to be a defensive move. If oil prices continue to rise, energy giants will likely continue to trend higher as well. They also tend to pay higher dividends, which can translate to a reliable stream of income during an uncertain investment period.
In addition to oil stocks, traditional defensive sectors, such as consumer staples and utilities, are areas that have historically held up during overall market selloffs, according to research from MSCI.
Maintain Liquidity
There’s an old expression in the stock market that the most money is made in bear markets, not bull markets. Depressed prices can create enormous opportunities for investors, but only if they maintain adequate cash reserves. During uncertain times, liquidity allows investors to remain flexible and take advantage of oversold markets.
Avoid Making Emotional Decisions
Emotional decisions can cause irreversible damage to portfolios in both up and down markets. In spite of the old Wall Street axiom to “buy high and sell low,” many investors get scared out of depressed markets — right when they should be buying — and only buy back in once new highs are reached. Markets often move quickly in reaction to geopolitical headlines. If war news drives stock prices down sharply, they may recover just as quickly the next day if tensions ease or negotiations resume, per a Reuters historical analysis.
Monitor Developments Closely
While you shouldn’t change your whole investment plan based on what may be a temporary geopolitical event, you shouldn’t bury your head in the sand either. If conditions continue to worsen, protecting your profits — or investing more — could be good strategies, depending on your personal investment goals and risk tolerance. However, to make sound decisions, you’ll have to pay attention and monitor expectations for inflation, corporate earnings and other variables so you can make informed decisions.
Editor’s note on political coverage: GOBankingRates is nonpartisan and strives to cover all aspects of the economy objectively and present balanced reports on politically focused finance stories. You can find more coverage of this topic on GOBankingRates.com.
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