“Uncertainty is the only certainty there is.” This quote from mathematician John Allen Paulos resonates now more than ever. In today’s unpredictable environment, the ability to adapt to constant change is essential because the future will always remain uncertain.
With ongoing uncertainty and current geopolitical tensions, it is natural to wonder what guidance history can provide. By looking at past conflicts and market reactions, we can find valuable insights to help navigate uncertain times.
Historically, wars and even the threat of conflict often lead to volatility in the markets. We need only look back to last June to see how WTI oil prices spiked but then declined 14 percent following the bombing of Iran’s underground nuclear facilities. Equity markets were relatively flat on the week. These events show how markets often react strongly at first but then stabilize as the situation evolves.
Looking further back to January 1991, oil prices had their largest single day decline in history after coalition forces began bombing Saddam Hussein’s military. The conflict impacted multiple major crude exporters including a devastating blow to Kuwait. Despite the instability, equity markets remained resilient. The S&P 500 returned 30.5 percent and the NASDAQ soared 57 percent that year as investors looked beyond the conflict.
A similar scenario unfolded in 1962, leading up to the Cuban Missile Crisis. At the start of the year, market optimism around technology, electronics, and aerospace so called “glamour” stocks drove up valuations. In 1961, the S&P 500 had delivered strong returns, with companies like Texas Instruments and Polaroid trading at extremely high price to earnings ratios.
However, by 1962, the market began to decline during a period known as the Kennedy Slide, as investors shifted toward more defensive sectors like utilities.
Contributing to the market malaise were rising Cold War tensions and developments that culminated in the Cuban Missile Crisis, which began on October 16. The threat of nuclear war triggered a further drop in the markets, with the S&P 500 falling about 7 percent in the first few trading days of the crisis.
Remarkably, just seven days into the twelve day crisis, the market bottomed and began to recover even before the crisis officially ended on October 23. Following its resolution, the S&P 500 rallied nearly 30 percent over the following months. Investors who sold during the panic missed these gains, highlighting the long term cost of acting out of fear.
What do these examples teach us?
History shows that patience often pays off. By the time headlines hit the markets, much of the fear is already priced in. Acting impulsively in uncertain times can be costly, just as hasty decisions in the fog of war carry risk.
As long term investors, the best strategy is to stick with a thoughtfully constructed investment plan and avoid making abrupt changes during times of uncertainty. While we do not know what tomorrow or the next month will bring, maintaining a diversified portfolio of high quality companies remains a sound approach.
Companies with proven resilience that have succeeded through the events of decades past continue to demonstrate that disciplined long term investing remains one of the most effective ways to build wealth.
Company Focus: National Bank of Canada
National Bank of Canada is Canada’s sixth largest bank and has consistently chosen its competitive positions well against its larger peers. National’s retail banking spans Canada but is anchored in Quebec, where it holds a leading market position behind Desjardins.
In Capital Markets and Commercial Banking, the bank has built a strong national franchise that competes effectively with the Big Five in underwriting, advisory, and trading while maintaining a steadier earnings profile.
National Bank’s disciplined capital deployment and ability to find niche opportunities where it can export its expertise to create meaningful value is also impressive. A standout example is ABA Bank in Cambodia, where fiscal 2025 earnings of 455 million dollars have exceeded National Bank’s total acquisition cost of 424 million dollars.
The 2024 acquisition of Canadian Western Bank represents another example of National Bank’s strategic expansion. The acquisition strengthens National Bank’s presence in Western Canada and opens up growth opportunities through expected cost synergies of approximately 270 million dollars by fiscal 2026 and estimated revenue synergies of 200 to 250 million dollars by 2028.
Canadian Western Bank clients will gain access to National Bank’s broader capabilities, including hedging, cash management, and capital markets services. These services represent immediate opportunities for revenue growth.
Additionally, National Bank is expected to free up more than 1 billion dollars of capital from Canadian Western Bank’s balance sheet through the adoption of its internal risk models, effectively reducing the 5 billion dollar purchase price by a significant margin.
Management is targeting a return on equity increase to 17 percent by fiscal 2027, up from 15 percent in 2025. With credible growth drivers including acquisition synergies and share repurchases, National Bank appears well positioned to grow earnings above its target range of 7 to 10 percent.
Dividend growth is also expected to remain strong, potentially matching or exceeding the five year annualized growth rate of 10.3 percent.
