Iran conflict: turmoil in the Middle East, but not in your portfolio

On 28^th February 2026, tensions in the Middle East escalated sharply. Our thoughts are first and foremost for the human impact of these events. However, in this note, we will focus on potential ramifications for client portfolios, which have had limited impact on diversified portfolios at the time of writing.

Israel, with support from the United States, launched coordinated strikes against Iranian military infrastructure and leadership targets. The operation reportedly hit hundreds of sites and killed several senior Iranian figures. The strikes marked one of the most significant direct attacks on Iranian state infrastructure in years.

Iran responded quickly. Over the following days, Tehran launched waves of missiles and drones targeting Israel and US-linked military facilities across the region. By 4^th March, retaliatory strikes and counter-strikes were reported across at least nine countries spanning the Middle East and eastern Mediterranean[1]. In other words, bombs have been falling across a large part of the region. Under normal circumstances, events like this would send financial markets into panic. But something seemingly counterintuitive has happened. Markets have barely moved.

Over the past five days, the S&P 500 has fallen by only around 1.5%[2]. Global equities, measured by the Morningstar Global Target Market Exposure Index, are essentially flat, down just 0.11% over the same period.

News headlines suggest escalation and instability, yet markets appear relatively calm. The explanation lies in how markets process information.

Markets price probabilities, not headlines

Markets do not react to how dramatic a headline sounds. They respond to whether events are likely to change the economic outlook. Investors focus on what conflicts might mean for corporate earnings, inflation, interest rates and global growth.

For now, markets appear to be treating the situation as a geopolitical shock rather than a structural economic shift. Unless there is sustained disruption to global energy supply, major trade routes or global demand, the long-term earnings outlook for large global companies remains broadly intact.

Measures of market uncertainty have risen slightly in recent days. The VIX, often referred to as the market’s “fear gauge”[3], reflects the cost of insuring against short-term market declines in equities. As of 4 March, the VIX is around 24, compared with a long-term average of roughly 19[4]. While this indicates investors are hedging against potential risks, it remains far below levels typically associated with severe market stress. For context, in April last year, the VIX briefly surged to around 49 following President Trump’s “Liberation Day” trade announcements, which triggered a sharp spike in global market volatility. In other words, markets are acknowledging uncertainty, but they are not signalling a financial crisis or recession scenario.

Volatility is not the same as crisis

During periods of geopolitical tension, it is worth remembering that some level of market movement is entirely normal. Equity markets regularly move several percentage points in either direction without altering their long-term path.

When headlines are dominated by conflict and uncertainty, those market moves can feel more dramatic than they actually are. News arrives quickly, emotions run higher and short-term fluctuations can appear more significant than reality.

But viewed through a longer-term lens, the level of volatility we are seeing today remains well within the range typically experienced during periods of geopolitical stress. Markets have navigated similar events many times before. While the headlines may feel unsettling, the underlying behaviour of markets is still consistent with what history would lead us to expect.

What matters for portfolios

The key question is not whether headlines are unsettling. It is whether the foundations of long-term plans have changed.

At present:

• Earnings expectations have not collapsed
• Central bank policy has not materially shifted
• Financial conditions remain stable
• Diversified portfolios still reflect global exposure

Well-constructed portfolios are designed for environments like this. They spread risk across regions, sectors and asset classes so that no single event dominates outcomes.

Perspective over reaction

Moments like this often test behaviour more than portfolios. When headlines are unsettling, the instinct to act can be strong. Yet history consistently shows that reacting to unpredictable geopolitical events often damages long-term investment outcomes.

Markets are forward-looking and adjust quickly as new information emerges. For long-term investors, the most effective response is usually to remain focused on the plan, maintain diversification and avoid making decisions based on short-term uncertainty.

References

[1] The Guardian, 2026

[2] As of 04 March 2026

[3] The VIX is an index that reflects how much movement investors expect in the US stock market over the next 30 days. When investors become worried about potential market falls, they often buy protection in the form of options. This increased demand pushes the VIX higher. Because it tends to rise when investors are nervous and fall when markets are calm, it is often referred to as the market’s “fear gauge”.

[4] CBOE, 2026

This commentary is for general information purposes only and has been compiled from sources believed to be reliable. Any views, opinions or estimates expressed in this commentary, including any forecasts or forward -looking statements, constitute the author’s judgment at the time of writing, are not guaranteed and are subject to change without notice. None of Timeline, its directors, officers or employees accepts liability for any loss arising from the use hereof or reliance hereon or for any act or omission by any such person, or makes any representations as to its accuracy and completeness.

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