U.S. stock market declines during the current geopolitical conflict have already exceeded the median level observed during similar historical events, with multiple indicators suggesting selling pressure has not yet been fully exhausted.

In early trading on Monday, U.S. stocks briefly rebounded following comments from former President Donald Trump regarding negotiation progress, but the gains proved unsustainable. The S&P 500 ultimately closed down 0.4% at 6,343.72 points. The Nasdaq Composite Index fell 0.7% to 20,794.64 points, while the Dow Jones Industrial Average eked out a minor gain of 49.50 points, or 0.1%, finishing at 45,216.14 points.

Since the close on February 27, the S&P 500 has accumulated a decline of 7.4%. This drop has surpassed the median maximum drawdown of 6.1% for historical geopolitical conflict events, according to statistics compiled by Deutsche Bank.

Analysis from Deutsche Bank's strategy team indicates that active investors are already significantly underweight equities, yet there remains room for further position reduction. Meanwhile, the equity exposure of systematic strategy funds has fallen below neutral levels. If the market fails to stage a timely rebound or if volatility continues to climb, these funds could continue their selling, potentially exerting further pressure on the market.

Notably, the VIX volatility index closed above 30 on Monday, a level that typically signifies a state of high alert in the market.

Historical patterns have failed to hold, with the current decline proving steeper. Approximately a month before the conflict involving Iran escalated, many professional investors bet that the impact would be short-lived, basing their view on historical precedent where stock market corrections triggered by geopolitical shocks often recovered within days or weeks.

A dataset previously compiled by Deutsche Bank's strategists had served as a market "playbook." It showed that historically, the S&P 500 bottomed an average of 16 trading days after a geopolitical shock, with an average recovery period of 109 days—though this figure was heavily skewed upward by the 1973 Arab oil embargo, after which the S&P 500 took over five and a half years to fully recover its losses.

However, the current market behavior has rendered these historical patterns ineffective. Following actions by Israel and the U.S. on February 28, investors were only able to trade on the related developments starting from the market open on March 2. As of Monday, 20 trading days have passed since the conflict escalated. Not only has the S&P 500 failed to find a bottom within the historical average window, but its decline has also already surpassed the median historical drawdown level.

Based on internal data, Deutsche Bank's strategy team points out that discretionary investors are currently significantly underweight stocks, yet their positioning still has room for further compression. The equity exposure of systematic strategy funds—including trend-following funds like Commodity Trading Advisors (CTAs)—has dropped below neutral levels for the first time since July 2024.

The team warns that if the market does not see a timely rebound, or if volatility increases further, these funds could continue to reduce their positions, creating additional mechanical selling pressure.

The VIX index closing above 30 on Monday is a level historically associated with high market anxiety, indicating that investor concern about the future outlook remains elevated.