Last week, the US and Israel attacked Iran, setting off a volley of conflict in the Middle East. While not completely unexpected, it still caught markets off guard. Tuesday, as investors began to digest the news, the S&P 500 dropped 2.5% intraday before recovering to close down just under 1%.
Even more unexpectedly, just days earlier an obscure memo from Citrini Research warning of a dystopian future driven by runaway AI caused the S&P 500 to drop over 1% in a single day. Citadel Securities and others quickly posted rebuttals, and the market recovered.
Both incidents highlight a recurring theme in markets: unexpected events drive economic and market disruptions.
Most often, we associate these surprises with negative developments:
October 2002 (S&P 500 -49%) - Coming out of the 1990s, investors worried potential Y2K fallout while internet companies without profits quietly inflated into a bubble.
March 2009 (S&P 500 -57%) - In 2007 and 2008, oil prices and geopolitical tensions dominated headlines while the housing bubble was widely believed to be contained.
March 2020 (S&P 500 -34%) - Entering 2020, investors were focused on slowing global growth and inflation below the Fed's 2% target while COVID-19 was spreading around the world.
But surprises also arrive on the positive side:
mRNA Vaccines - These breakthroughs helped the world emerge from the pandemic and restart the global economy.
Artificial Intelligence - When ChatGPT became a household name, the real-world potential of AI became clear, unlocking a new wave of earnings growth for companies like NVIDIA.
GLP-1 Medications (Ozempic, Wegovy, Mounjaro) - These drugs represent a major breakthrough in the fight against obesity and diabetes.
Investors spend a lot of time and mental energy worrying about inflation, interest rates, tariffs, and whatever headline dominates the financial news cycle. But the reality is simpler: the biggest market drivers--both positive and negative--almost never come from the risks everyone is watching.
So how should investors prepare? Not by trying to predict the next surprise.
Instead, the best defense is a thoughtfully constructed portfolio with an investment allocation that matches your individual risk tolerance and time horizon.
From there, discipline matters more than prediction. You avoid chasing returns in good times and resist selling into fear during difficult ones. You stay invested, keep time on your side, and allow the long-term power of the markets to work for you.
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Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@lefleurfinancial.com.
Josh Norris, CPA, CFP, CFA is the managing member of LeFleur Financial, a wealth management and tax advisory firm.