On Tuesday and Wednesday this week, all three major U.S. indices rose as investors priced in the possibility that Trump’s prime-time address would signal a path toward de-escalation in Iran. The S&P 500 gained 0.72% on Wednesday. The Nasdaq rose 1.16%. The mood on trading floors shifted from fear to cautious optimism. By Thursday morning in Asia, every point of those gains had been erased, with futures pointing to a 1.6% decline at the open. This is the third time this exact cycle has run since the war began. It will probably not be the last.

The pattern is not random. It reflects a specific and well-documented set of cognitive biases that become most active under conditions of sustained uncertainty. Understanding those biases does not make them disappear. But it does make it easier to recognize when they are driving a decision rather than analysis, which is the first step toward not acting on them.

Resolution Bias and the Desperate Want for an Ending

Behavioural finance researchers have documented what is sometimes called resolution bias: the tendency of investors to want ambiguous, uncomfortable situations to resolve, and to interpret ambiguous evidence as confirmation that resolution is imminent. In a sustained geopolitical crisis, every hint of negotiation gets weighted more heavily than the underlying evidence warrants, because investors are psychologically motivated to believe the discomfort is ending.

This week’s cycle is a textbook example. Trump claimed on Wednesday that Iran’s “new regime president” had asked for a ceasefire. Iran immediately denied it. The evidence for an actual ceasefire was thin at best. But markets rallied anyway, because the claim offered a plausible path to resolution that investors were primed to accept. When Trump’s speech delivered escalation instead of a deal, the reversal was swift. The information content of the speech was not dramatically different from what was already known. The emotional content was. Markets had loaded up on hope; the speech unloaded it.

S&P 500 Daily Returns: Key Ceasefire Cycle Events
Selected sessions March 1 to April 2, 2026 — approximate daily change (%)
+3% +1.5% 0% -1.5% -3% Mar 2 -2.5% Mar 10 +1.6% Mar 23 +2.5% Mar 27 -3% Apr 1 +0.7% Apr 2 -1.6%* * Apr 2 reflects futures as of pre-market open
Source: Trading Economics, CNBC, Bloomberg — selected sessions, approximate values

Availability Bias and the Vivid Headline

The second bias at work is availability bias: the tendency to judge the probability of an event by how easily an example comes to mind. Vivid, recent, emotionally charged information gets overweighted. Abstract, statistical, base-rate information gets underweighted. In the current environment, a Trump post on Truth Social claiming Iran asked for a ceasefire is maximally vivid and emotionally resonant. Historical base rates on how often ceasefire hints in active military conflicts translate quickly into actual ceasefires are abstract and emotionally inert. Availability bias causes investors to act on the vivid signal and ignore the base rate.

The historical base rate is not encouraging. Research on geopolitical market shocks by analysts including those at Goldman Sachs and Oxford Economics consistently finds that investor attempts to trade around geopolitical events, buying on de-escalation signals and selling on escalation signals, produce worse outcomes than simply holding a pre-crisis allocation. The timing errors compound: investors who sold in the initial shock missed the partial recovery; investors who bought the recovery are now sitting on losses from the reversal; and the cycle continues with each iteration catching a different group of reactive participants on the wrong side.

The Distinction That Actually Matters

None of this means that portfolio decisions during a geopolitical crisis are always wrong. What the research supports is a specific distinction: deliberate, plan-driven reviews produce better outcomes than reactive, headline-driven trades. The difference is not the action taken. It is the process that led to it. A client who reviews their energy weighting after five weeks of sustained oil shock and concludes a trim is warranted given their time horizon and risk tolerance is making a plan-driven decision. A client who sells their energy ETF on Thursday morning because Trump’s speech was disappointing is making a headline-driven trade. The first may produce the same transaction as the second. The cognitive process that generates it is fundamentally different, and over time that process difference compounds into meaningfully different outcomes.

The practical challenge is that the plan-driven decision is harder to make in real time. Under sustained stress, the brain’s threat-detection systems are active and pushing toward action. The research on this is consistent: financial decision quality degrades under sustained stress in predictable ways. Impulsivity increases. Time horizons shorten. Loss aversion intensifies, making small losses feel disproportionately painful and pushing toward defensive actions that lock in those losses. Recognizing this dynamic is not a cure for it. But it is the foundation of every useful conversation an advisor can have with a client who is on the edge of a reactive decision.