When Uncertainty Strikes: The First 72 Hours of Fear

The 12 Temptations blog is an ongoing series examining how markets behave under stress. We deliberately avoid prediction and advocacy, focusing instead on structure, incentives, and behavioural dynamics.

Over the past 48 hours, geopolitical tension between the United States, Israel and Iran has escalated into direct military action. Air and missile strikes have been reported. Retaliatory measures have followed. Political leaders are issuing statements, and international observers are attempting to assess the scale and trajectory of events.

At the time of writing, it is still the weekend. Financial markets are closed. There are no live equity prices, no opening gaps yet visible on a screen, no formal repricing of risk in global indices. And yet the psychological repricing has already begun.

Before the Bell: The Psychological Repricing

For many investors, this waiting period can feel more uncomfortable than the market reaction itself. There is no ability to transact, no price to anchor to, no confirmation of whether fears will be validated or contained. There is only information, speculation, and the awareness that when markets reopen, they will need to process a very real geopolitical shock.

This is where behavioural finance becomes particularly relevant.

When Uncertainty Widens the Range

The first 72 hours following an unexpected escalation are rarely governed by calm, model-driven recalibration. They are shaped by uncertainty. When the range of possible outcomes suddenly widens, the human mind instinctively leans toward caution. Ambiguous threats are treated as serious until proven otherwise. In evolutionary terms, that bias made sense. In financial markets, it can amplify volatility.

Even before trading begins, salience is doing its work. Images of strikes, maps of the region, commentary about oil routes and military assets dominate attention. These are concrete and emotionally charged inputs. They crowd out slower-moving fundamentals such as long-term earnings trends, productivity growth, or demographic forces. What is vivid, feels important. What is important, feels urgent.

The availability heuristic reinforces this effect. Investors search memory for comparable episodes: oil shocks of the 1970s, the Gulf War, the invasion of Iraq, more recent regional conflicts. The mind draws quick parallels. Some of those historical events led to recessionary pressures. Some led to temporary price spikes followed by stabilisation. But in the early phase, the brain does not neatly categorise outcomes. It simply registers that conflict has, at times, preceded economic stress.

Loss aversion then adds another layer. Many portfolios are near recent highs after strong periods in global equity markets. When a new risk emerges, attention shifts quickly from accumulated gains to the possibility of losing them. The emotional weight of a potential decline looms larger than the satisfaction of past appreciation. This shift can occur even before markets open, simply in anticipation of what might happen.

From Long-Term Strategy to Monday Morning

Importantly, this is also when time horizons begin to compress. Long-term investors, whose objectives may span decades, can find themselves thinking in terms of hours. Futures markets and commodity pricing, once they reopen, will become focal points. The question subtly changes from “Is my strategy appropriate for my long-term goals?” to “What will happen on Monday?”

There is also a powerful action bias waiting in the wings. When markets reopen, the urge to do something may be strong. Sell to reduce exposure. Buy perceived safe havens. Increase hedges. Rotate sectors. Action creates a sense of control. In uncertain environments, that sense of control is psychologically comforting, yet it is worth pausing on a critical distinction. Volatility is not the same as permanent impairment. A repricing of oil due to geopolitical risk does not automatically translate into a structural collapse of global corporate earnings. Equity indices may open lower as risk premiums adjust, but that initial adjustment is often a function of uncertainty rather than a fully formed economic contraction.

Volatility vs Permanent Impairment

This does not minimise the seriousness of the conflict. Military escalation carries real human and economic consequences. Energy markets, in particular, can transmit shocks into inflation expectations and monetary policy decisions. If shipping routes are threatened or supply is materially disrupted, the economic implications can extend well beyond a single trading session.

But in the very early phase, markets are primarily grappling with the unknown. The width of the outcome distribution matters more than the most likely outcome. Prices, when they reopen, will reflect a collective attempt to narrow that distribution.

History suggests that geopolitical shocks often follow a recognisable market pattern. An initial spike in volatility and risk aversion is common. As more information becomes available and the scale of the event becomes clearer, markets begin differentiating between temporary disruption and structural change. Some episodes resolve with limited long-term financial impact. Others evolve into broader economic challenges. The key point is that the early reaction is rarely the final verdict.

Posture Over Prediction

For investors, the practical challenge over these first 72 hours is not prediction but posture. Has anything fundamentally changed in personal financial objectives? Has the long-term earning power of diversified assets been permanently altered? Or is the system repricing risk in response to heightened uncertainty?

A disciplined plan anticipates that events like this will occur periodically. It does not assume geopolitical calm as a baseline condition. Its value becomes most apparent when headlines are intense and emotions elevated. In such moments, the plan serves as an anchor, not because it eliminates risk, but because it provides context.

There is nothing inherently wrong with reassessing exposures when new information emerges. Prudence is not passivity. However, it is worth recognising when decisions are being driven by long-term analysis versus short-term discomfort. The first 72 hours of fear are often when that distinction is hardest to see.

Markets will reopen. Prices will adjust. Commentators will interpret the moves as signals of either deeper trouble or exaggerated panic. In time, the range of uncertainty will narrow. What feels open-ended today will become more defined.

Until then, the most consequential decisions may not be made on trading screens, but in how investors manage their own reactions to an unfolding event. When uncertainty strikes, composure is not about ignoring risk. It is about ensuring that responses remain aligned with objectives rather than dominated by fear.