Diffusing tensions helped Wall Street get back to winning ways.
Topline: Despite stock futures plummeting overnight on reports that Iran launched a missile attack on U.S. military bases in Iraq, the market sharply rebounded on Wednesday. Stocks hit new record highs after Trump’s comments on Iran indicated a de-escalation of potential conflict.
- At their worst levels of overnight trading, S&P 500 futures were down by as much as 1.6%, while the Dow shed more than 400 points.
- But stocks pared back losses and recovered by Wednesday’s open after it became clear that Iran’s retaliation resulted in no casualties leaving observers less worried about a full-fledged war.
- In a press conference late Wednesday morning, Trump stated Iran “appears to be standing down” and indicated there would be no armed response from the U.S., though he did pledge new economic sanctions on the Iranian regime.
- The stock market breathed a sigh of relief, rallying to new records on the news: The S&P 500 and Nasdaq Composite indexes both hit all-time highs, rising by 0.66% and 0.80%, respectively. The Dow Jones Industrial Average also moved higher, up by 0.72%.
- Trump’s press conference “largely expressed a conciliatory message, reinforcing the notion that Washington is aiming to de-escalate tensions in the region,” says Adam Crisafulli, founder of Vital Knowledge.
- The stock market also got a boost after ADP and Moody’s said U.S. private payrolls soared by 202,000 last month—far above the expected 150,000, which indicates the U.S. job market is still robust and can continue to support the U.S. economy’s moderate expansion.
Crucial quote: “What initially seemed to be a large negative is actually now considered a small positive,” Crisafulli describes, as Iran’s retaliatory actions were minor and appear to be over for now. Crisafulli further notes that the current circumstances are not necessarily a good reason for the market to rally further but they should “help calm anxieties” while investors “are moving Iran to the periphery of the narrative” and shifting focus back to the November/December mindset when positive economic growth and central bank accomodation helped keep market momentum steady.
Tangent: The Dow’s gains, however, were tempered by Boeing shares falling 1.3%, after a Ukraine International Airlines Boeing 737 airliner burst into flames and crashed in Tehran on Wednesday, killing all 176 people onboard. While airline stocks haven’t fared well with the Iran news (higher oil prices means higher prices for airplane fuel), war stocks—those of the big defense companies, like Lockheed Martin, Raytheon and Northrop Grumman—have surged in recent days.
Key background: The U.S. and Iran have been at odds since Trump backed out of the Obama-era nuclear deal in 2018. Tensions escalated to a boiling point last week, when Trump responded to a New Year’s Eve attack by Iran-backed militias on the U.S. embassy in Baghdad by ordering an air strike that killed top Iranian general Qassem Soleimani last Thursday. That sent stocks plunging and oil prices surging on Friday, as the market’s strong start to the new year got derailed amid the escalating geopolitical tensions in the Middle East. Stocks recovered Monday, with major indexes ending the day up slightly, as Wall Street appeared content with the view that tensions with Iran will eventually cool down.
Iran harshly condemned the air strikes and vowed to retaliate—and did so last night by launching more than a dozen missiles at U.S. military bases in Iraq. In his televised statement on Wednesday, Trump said no casualties were reported and that all American soldiers in the region were safe. He also called on NATO to get “much more involved in the Middle East process” and stated that Iran will need to end its nuclear ambitions and cease its support of terrorism. Until then, Trump said, the U.S. will continue to impose sanctions on the country.
Further reading: Trump: ‘Iran Appears To Be Standing Down’ (Lisette Voytko)
How Middle East Tensions Derailed Stock Markets’ Strong Start In 2020 (Sergei Klebnikov)
War Stocks Rise Amid U.S. Tensions With Iran, Lockheed And Northrop Shares Jump (Sergei Klebnikov)
Stock Market Rebounds, Shaking Off Geopolitical Fears For Now (Sergei Klebnikov)
Here’s Why Stocks Plunged, Oil Prices Surged After U.S. Air Strike Kills Top Iranian General (Sergei Klebnikov)
