The US-Iran war is dragging on. What investors should do: 5 tips from Business Insider

Investors should not panic because of the rapidly changing market situation related to the war in Iran and the rising cost of oil, according to analysts surveyed by Business Insider. Their advice is based on historical experience: in the post-World War II period, markets recovered losses 72% of the time within six months of the outbreak of military conflicts, according to Art Hogan, chief market strategist at B. Riley Wealth Management's Art Hogan. "So any abrupt change in a long-term investment portfolio is likely to be a mistake," he told Business Insider.

Market experts, with whom the publication spoke, gave five recommendations on what investors should do in the market now, and what is better to avoid.

Some investors may have a natural desire to move quickly into market segments that could benefit from war, such as energy, aerospace and defense. The problem with that strategy is that by the time most investors start buying, the increased production in those sectors is already largely priced into quotes, which means many traders risk losing money, says Hogan of B. Riley Wealth Management. Earlier this year, for example, many investors rushed into defense stocks when the U.S. raided Venezuela: The iShares US Aerospace & Defense ETF rose 9% in the first two weeks of the year. But that fund is now 3% below its mid-January peak.

"Chasing obvious beneficiaries can also cost you dearly, so I wouldn't advise chasing them," he said.

Other defensive segments of the market - such as the industrial sector, consumer staples and small-cap stocks - have also performed better than the market recently, Business Insider writes. While investors typically look for protection in these segments, they now look overbought, Hogan explained. "In fact, you enter these sectors at or near all-time highs, and when things normalize, there will likely be a pullback or a return to average levels there," he added.

Hogan said segments such as small-cap stocks (small caps) are particularly vulnerable to the U.S.-Iran standoff, as accelerating inflation is likely to hit small companies the hardest.

Peter Berezin, chief global strategist at BCA Research, advised caution on those parts of the market that could be affected by inflation, including bonds. While bonds are generally considered a defensive asset, inflation could push interest rates up in the long term, and that would push yields up and the value of the securities down. "It's a stagflationary shock, so going into bonds could be risky. But staying in equities could be risky too," he told Business Insider.

The technology sector is the only part of the S&P 500 index that appears to be relatively resilient to a possible spike in oil prices and the risk of higher inflation. The sector is now trading at a discount after the "AI apocalypse" that hit software developers and other companies in the industry, Business Insider emphasizes. "If you don't have enough technology in your portfolio, now may be the right time to increase your exposure to it and conversely, reduce your investments in sectors that are already up a lot," Hogan says.

For short-term investors who do intend to change their portfolio structure, Berezin of BCA advises them to increase the share of cash rather than take on additional risk in other market segments. He pointed to the likelihood of accelerating inflation and stagflation, a scenario in which inflation rises and the economy slows.

"The economy was not operating at full capacity even before the oil shock, and if this shock lingers, it could be enough to push it into recession later this year," Berezin said.

Pepperstone strategist Michael Brown agrees. "It's worth reducing investments in global equities given how uncertain and volatile the environment remains," he said.

ETFs, whose returns rise with increased market turbulence, have become particularly popular in recent weeks: according to Vanda, retail investors have been actively buying the 2x Long VIX Futures ETF, a fund that tracks an index of market volatility, as well as the ProShares UltraPro Short QQQ, an inverse instrument that rises when the Nasdaq 100 Index declines.

This is one way to hedge against market risks, but it can also be extremely risky in itself, Berezin cautions. He reminds us that volatility is capable of falling just as quickly. The VIX index, also called the Wall Street Fear Index, is considered a key indicator of market volatility. It is now hovering around 26 points - down from a peak of 29 earlier this month. According to Hogan, it can't be ruled out that the peak in volatility is behind us. "A volatility ETF by its very nature is itself extremely volatile," he said, commenting on investor interest in the instrument.

"I think it's definitely not an instrument that the average retail investor should be looking at," said Pepperstone's Brown.

This article was AI-translated and verified by a human editor