Seven Summits Capital April 2026 Investment Commentary
By
Curt R. Stauffer
When I wrote to you in early March about "Operation Epic Fury," I tried to do something that is emotionally difficult but historically necessary: separate the horror and uncertainty of war from the behavior of capital markets. I walked through more than a century of history around U.S. military interventions and geopolitical shocks and concluded, almost counterintuitively, given the headlines: markets usually stumble when the shooting starts, but they rarely collapse purely because of it.
Over the last month, as the conflict with Iran has unfolded, markets have offered a real?time test of that thesis. The result so far has not been pleasant, but it has been familiar. Prices have behaved much more like prior episodes of heightened geopolitical tension than like the "epic correction" many feared.
What I said then, and what we've just lived through
In March, I highlighted a few recurring features of past U.S. wars and conflicts from a market perspective: an initial pullback as uncertainty surges, a brief period of elevated volatility, and, more often than not, a recovery that begins well before the news flow has improved. Historically, average market declines around major war?related shocks have tended to be in the mid?single?digit range, with recoveries measured in weeks or months rather than in years. Longer?term returns, one year out from the onset of conflict, have on average been positive.
The last several weeks have broadly followed that script. When U.S. strikes expanded, and it became clear that the confrontation with Iran would not be a one-off event, equities sold off, volatility spiked, and the usual chorus of "this time is different" returned. Oil prices jumped as traders began to price in disruption in and around the Strait of Hormuz. The instinct to sell first and ask questions later was understandable. This instinct, if acted on, would have been costly. We were fortunate because most of our client portfolios were tilted more cautiously than "normal" before the Iran war began; we could largely stay the course and take advantage of the expected pattern that unfolded over the last month.
As more information emerged and the contours of the conflict became clearer, markets began to do what they almost always do: move from reacting to headlines to discounting a range of outcomes. On days when the probability of escalation seemed to rise, we experienced sharp drops. On days when investors sensed a potential diplomatic off?ramp or a pause in attacks, those losses were quickly clawed back. In several sessions, major U.S. indices rallied strongly on nothing more than the perception that the worst near?term scenarios were being taken off the table.
Standing back from the day?to?day, what we have seen has followed a fairly reliable pattern. It has been mostly a textbook war?headline shock layered on top of an existing macroeconomic and earnings story.
War is the headline; oil and policy are the mechanism
One of the key points I emphasized in March is even clearer now: wars move markets indirectly. They are the headline catalyst, but the actual transmission mechanism runs through a handful of economic channels-energy prices, inflation, interest?rate expectations, and ultimately corporate earnings.
History provides a useful perspective here. Many post?World War II conflicts produced modest, short?lived market drawdowns, followed by respectable returns as economic growth and earnings reasserted themselves. The outlier episodes in which investors faced a more protracted market downturn were defined not only by conflict but also by persistent spikes in oil prices, entrenched inflation, and a shift in the interest?rate regime that compressed valuations and eroded real returns. In other words, it was the reflexive macro environment that did the lasting damage, not the war itself. Most recently, we experienced this in 2022 following the Russian invasion of Ukraine. In early 2022, markets were already becoming more fragile due to worries about inflation and the prospect of a more restrictive Federal Reserve. The Ukraine war itself caused disruption in certain markets, such as grain and seed oil, but it was the resulting economic sanctions imposed on Russian energy that pushed oil and gas prices higher, which turned inflation concerns into a market panic and spurred the Federal Reserve to raise interest rates more aggressively than we have seen since the early 1980s. As painful as the 2022 equity Bear Market and steep losses in bond prices were, I wrote at the time, unlike the overwhelming consensus of economists and investment strategists who were calling for the economy to fall into a recession, that I did not expect a recession so long as the unemployment rates remained historically low. My view was realized: equity markets bottomed in October 2022, absent a recession, and a historically strong Bull Market ensued, producing a rare two consecutive years of 20%+ stock market returns and a third year with returns in the high teens.
The distinction between the headline risk of war and resulting short-term market volatility, and the second- and third-degree economic consequences, determines how we navigate these periods. We cannot predict the exact course of a conflict. But we can analyze the potential resulting risks to economic growth, business cash flows, interest rates, and discount rates.
The behavioral trap: reacting to the news vs. investing through it
Every significant geopolitical shock brings with it the same behavioral temptations: to extrapolate worst?case scenarios indefinitely, to liquidate risk at the very moment uncertainty is highest, or to chase whatever sector seems most obviously "benefited" by the conflict. I have managed money through many geopolitical shocks over the last 28 years, and initial market responses to each have followed a very similar pattern.
Defense and aerospace companies, for example, often attract immediate attention when war headlines hit the tape. Yet the historical evidence is more nuanced. The performance of defense stocks during wars has depended not just on the existence of conflict but on pre?war valuations, budget cycles, and the specific mix of contracts each firm holds. Investors who buy these names simply because there is a war, without regard for these fundamentals, are not investing-they are trading the news. In our case, we began adding to our exposure to the defense sector in late 2024 and early 2025, with an emphasis on European defense companies. The impetus for increasing our exposure to defense companies, particularly those in Europe, was not a reaction to any single event, but a decision based on attractive valuations, combined with what we saw as a mosaic of factors that would support improving business conditions in this sector.
The last month has rewarded this discipline. Clients who remained aligned with a long?term plan-anchored in valuation, balance?sheet strength, and durable cash?flow generation-were positioned to participate in the sharp relief rallies that followed the worst of the selling. Investors who moved to the sidelines on the most frightening days now face a familiar dilemma: when and how to get back in at higher prices.
Once again, markets have reminded us that reacting to the news is not the same as investing through it. The following chart, posted by MV Financial on April 18 in a Seeking Alpha commentary titled The Alfred A. Neuman Market Returns, clearly shows how the S&P 500 reacted to changes in oil prices over the last 45 days. Early in Epic Fury, as oil prices rose, the S&P 500 declined in kind, but as March came to an end and oil prices stopped rising, the stock market began to rally as perceived worst-case scenarios abated:
