Deutsche: We're Approaching The Moment Of Historical Truth...

The news flow around the war in Iran looks more worrying for global markets with each passing day.

Even so, Deutsche Bank's Jim Reid notes that this episode is still tracking the historical geopolitical pattern for US equities, and warns that we are now approaching the point where markets have typically bottomed on average.

The Chart above shows that the S&P 500 is currently down just under 4% since the attacks on Iran, over 13 trading days.

Historically, when looking across more than 30 geopolitical shocks since 1939, the average path by day shows that US equities tend to bottom around T+15, at a little over 4% below their pre-shock level.

It is important to distinguish that from the average overall drawdown across those episodes.

The T+15 figure refers to the average market decline on that specific day after the shock.

By contrast, if you look at the deepest point reached at any stage after the shock in each episode, the decline is larger — around -6% on a median basis and -8% on an average basis.

So the “average low by day” and the “average overall low” are measuring two different things.

In date terms, the average worst point tends to come around three weeks after the initial shock, and we are now closing in on that window.

Looking further out, median returns are back to pre-shock levels by day 34, which is just under seven weeks after the event, while average returns are also close to full recovery by then.

That matters because the news flow has looked materially bleaker over the last 36 hours.

Brent and gas prices have spiked overnight after the world’s largest LNG export plant in Qatar reportedly suffered “extensive damage” following Iranian strikes.

So the question is whether this marks the start of a more serious sell-off, or whether we are simply following the usual geopolitical playbook - one in which the worst news flow and the greatest market damage on average tend to coincide around this stage.

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