Virtually every major asset class has been stung by volatility over the past week as the combined U.S. and Israeli assault on Iran caused one of the most rapid spikes in crude-oil prices on record.

Across Wall Street, strategists have been breathlessly gaming out various scenarios for markets and the global economy. By now, plenty of ink has been spilled about how the ramifications of geopolitical shocks tend to be short-lived — at least as far as financial markets are concerned.

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But according to Manish Kabra, head of U.S. equity strategy at Societe Generale, looking specifically at oil-price shocks CL.1 BRN00 over the past 50 years can offer investors some clues about what really matters for their portfolios right now.

Based on these past experiences, the most important issues for global markets boils down to this: How long will the oil-price shock last? And how will the Federal Reserve, and other central banks, respond?

Perhaps a third corollary is how much pain markets might need to endure before President Donald Trump decides to scale back U.S. military involvement, although such an outcome remains highly uncertain. Trump will hold a press conference this evening from Doral, Fla. He reportedly told a CBS News journalist earlier in the day that he thought the war was “pretty much complete.”

Strategists from BCA Research have also argued that it might be more difficult for Trump to reverse course this time around, given the fact that Israel and Iran are also participants in this conflict.

“Fundamentally, two variables matter: 1) Shock duration; 2) the Fed’s reaction function,” Kabra said in written commentary shared with MarketWatch. The 1970s recessions driven by oil shocks “were amplified by Fed tightening. Three of the five shocks triggered a U.S. recession, the last two amid more resilient growth.”

Kabra focused his analysis on five previous incidents that sent oil prices surging higher: Russia’s invasion of Ukraine in 2022, the beginning of the Iraq War in 2003, the Gulf War in 1990, the Iranian Revolution in 1979 and OPEC’s embargo in response to the Yom Kippur War in 1973.

History shows that U.S. stocks tend to outperform their international peers during these episodes. The U.S. dollar DXY and gold GC00 also tend to get a boost. A breakdown of how major asset classes have performed, on average, over the following week, three months and six months, can be found below.

Average return

One week later

Three months

Six months

Oil

9.90%

33.20%

30.90%

Gold

2.00%

5.20%

22.60%

Copper

2.30%

7.60%

6.90%

USD (DXY)

0.20%

0.90%

1.50%

US 10y

-0.50%

-0.30%

-1.40%

Global Equities

-0.90%

-2.70%

-1.60%

S&P 500

0.30%

-2.70%

0.30%

MSCI Europe

-2.30%

-2.50%

-3.50%

MSCI EM

-4.10%

-6.70%

-1.00%

Cyclical vs Defensive Sectors (US)

0.00%

-6.80%

-1.40%

Factset, Bloomberg, Refinitiv, SG Cross Asset Research/Equity Strategy/Asset Allocation.

Kabra went on to explain that, in the past, oil-price shocks have tended to dissipate after three months. But it isn’t the price move alone that matters to markets: How the Federal Reserve responds can also have a big impact.

Recently, traders of interest-rate futures have been betting that the jump in oil prices will make another Fed rate cut this year less likely, according to the CME Group’s FedWatch tool. Some are even betting that the Fed could raise interest rates if higher oil prices help to revive inflation.

So far, market-based gauges of investors’ inflation expectations over the long term haven’t moved all that much. That means the market still expects any impact on inflation to be relatively short-lived.

Kabra cited the five-year, five-year break-even inflation rate, which derives inflation expectations from trading in the market for U.S. government debt. The indicator measures investors’ expectations for the average rate of inflation during a five-year period beginning five years from now. It has been moving lower since the summer.

“Central banks will determine whether to look through temporary price spikes,” Kabra said.

U.S. stock futures tumbled overnight as stocks in Asia were hit hard, although European indexes fared better. By the time Monday’s closing bell rang in the U.S., major indexes had reversed their earlier losses and were trading higher.

The S&P 500 SPX, Dow Jones Industrial Average DJIA, Nasdaq Composite COMP and Russell 2000 RUT were all sitting on solid gains.

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50 years of oil-price shocks have taught us that only 2 things matter to markets right now