Big Money Dumps SPY, But History Says Don't Panic
Even while geopolitical tensions churn markets and institutional behemoths withdraw billions from one of the globe’s most popular ETFs, existing data implies long-term investors may be wise to stay put.
The SPDR S&P 500 ETF Trust (NYSE:SPY), one of the largest and most liquid ETFs globally, was in downward pressure last week after tensions in the Middle East increased and investor anxiety rose. On Friday, SPY fell 1.1% to $597 after the S&P 500 Index dropped below the symbolic 6,000 mark, following Israeli attacks on Iran and heightened fears of a broader conflict.
Although it has currently pared the losses by Monday afternoon, question marks are flying above the investor cohort.
But even as headlines may be getting nerves on edge, a closer examination of data and some historical context paints a different picture.
$25 Billion SPY Selloff In Q1: What Are The Big Funds Seeing?
In the first quarter of 2025, institutional investors sold more than $25.2 billion of SPY, with Capula Management ($9.13 billion exit), Qube Research & Technologies ($2.87 billion exit) and Bridgewater Associates ($2.80 billion exit) among the first to flee, based on data from Hedge Follow.
Though the magnitude of the sell-off is attention-grabbing, analysts note these actions are most likely tactical repositioning. This may possibly a hedge against geopolitical risk or a rotation into more defensive strategies, such as capping index-wide exposure in the near term, more than a pure bearish bet on U.S. stocks.
Market Declines Following Middle East Tensions Escalation
The SPY sell-off followed a larger decline among major U.S. indexes. The S&P 500 dipped on Friday, retreating after a streak of strong growth.
Driving the pullback were new worries about conflict in the Middle East. News of Israeli attacks on Iranian military sites revived concerns of a broader war in the region, with analysts speculating about the impact on global markets.
“The S&P 500 is now in the middle of the Middle East,” said Ed Yardeni of Yardeni Research, who thinks the pullback is a buying opportunity. This can also mean that now is a good entry point into SPY.
History Becomes The Mediator
While the headlines are dramatic, LPL Financial's Jeff Buchbinder points to a historical pattern of market resilience in the face of geopolitical conflict.
In an analysis of 25 wars and military incidents over 70 years, LPL found that the S&P 500 typically declines by just 5%, on average, during such events. More importantly, markets usually bottom within 19 days and recover their losses within 42. Indirectly, we can expect this strength to reflect in SPY as well.
To Dip, Or Not To Dip?
With SPY hitting a bump on the road, long-term investors are wondering if now is the moment to buy. As Wall Street whales are reducing exposure, strategists such as Louis Navellier warn that a big concern is that the conflict could expand.
Yet contrarian dissenters claim that dips driven by fear tend to benefit disciplined investors.
Stock futures are mostly unchanged this Sunday evening. Right or wrong, so far investors are believing Israel-Iran war is not a risk,” posted Nigam Arora of The Arora Report on X.
SPY May Be Down, But Not Out
Whereas short-term prospects are obscured by tensions on the global stage and top-of-page risk, past data indicates that SPY, and the U.S. market at large, has a demonstrated pattern of rebounding from such incidents.
For individual investors, it ultimately is a matter of time horizon and tolerance for risk. But if history is predictive, so-called panic selling amid geopolitical shocks does not often reward.
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