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Markets Rattled by Rising U.S.-Iran Tensions U.S. Stocks Shake Off Rising Middle East Tension
(about 5 hours later)
The aftershock of the American killing of a powerful Iranian general rippled through financial markets on Monday, as oil prices rose and money moved to the safety of gold and Treasury bonds in the face of rising tensions in the Middle East. Wall Street shrugged off rising tensions in the Middle East on Monday, even as oil prices rose and stocks outside the United States sank.
On Wall Street, however, the stock market remained broadly indifferent. After slipping in early trading, the S&P 500 index clawed back most of those losses by midday Monday. There was, however, selling in shares of companies with significant exposure to fuel costs: Airlines, shipping and logistics firms fell. But oil and energy companies — which can benefit from higher oil prices — rose. The S&P 500 wobbled early but regained its losses and closed 0.4 percent higher for the day.
Brent oil, the international benchmark for crude, briefly jumped above $70. The rise in oil prices — Brent crude is up more than 7 percent in less than a month — set the tone for trading in other markets, with stock markets in oil-reliant nations like India and Japan seeing steeper drops in overnight trading. Japan’s Nikkei dropped 1.9 percent, as did India’s key stock market benchmark, the Sensex. The resilience of the American market reflects, in part, the emergence of the United States as the world’s largest oil producer — and therefore, in part, a beneficiary of rising oil prices.
In Europe, shares also took a tumble. Markets in Frankfurt, London, Paris and Amsterdam were all down about 1 percent. “The Middle East matters far less to the U.S. today than a decade ago,” Robert Bilkie, chief executive at Sigma Investment Counselors in Northville, Mich., wrote in an email.
In the United States, the discount retailers Dollar Tree and Dollar General, whose customers tend to have lower disposable income and higher sensitivity to increased gas prices, fell more than 1 percent in early trading. But Monday’s rally also underscores ingrained investor expectations that the Federal Reserve will continue to take steps to bolster the economy and cushion financial markets.
Yields on Treasury bonds — which move in the opposite direction of prices — dipped early as investors sought out the relative security of government bonds. The yield on the 10-year Treasury note fell to 1.76 percent in early trading, before rising to 1.82 percent shortly before noon. The Fed cut interest rates three times in 2019, helping to drive the market to one of its best years in decades. The S&P 500 rose 28.9 percent last year.
The drop in yield sent share prices of finance companies down. Lenders tend to benefit from higher bond yields, which are the foundation for the rates consumers pay to borrow. The financial sector was the worst-performing part of the S&P 500 in early trading Monday. “The narrative is you’ve got to buy stocks as long as the Fed is there and not raising interest rates,” said Ricardo Cortez, co-chief executive of Broadmark Asset Management in San Francisco.
Prices for gold, traditionally viewed as a both a safe haven and a hedge against higher inflation, rose. On Monday, energy markets bore the brunt of the rising tension between the United States and Iran that followed the American killing of a powerful Iranian general. The State Department warned of a “heightened risk” of a missile attack near American military bases, Iran said it would abandon the 2015 nuclear agreement, and Iraq vowed to expel American troops from the country.
Investors showed nervousness as Iran pledged to retaliate for the killing of Qassim Suleimani, the Iranian general, and President Trump raised the specter of additional strikes on Iranian cultural sites if it did so. Brent crude, the international benchmark for petroleum, briefly jumped above $70 before closing at $68.91 a barrel, up 0.5 percent. Benchmark American crude oil prices were up 0.3 percent, at $63.27 a barrel.
The State Department warned of a “heightened risk” of a missile attack near American military bases. Iran later said it would abandon a nuclear agreement and Iraq vowed to expel American troops from the country. Stock markets in oil-reliant nations like India and Japan faced steeper drops in overnight trading. Japan’s Nikkei dropped 1.9 percent, as did India’s key stock market benchmark, the Sensex.
The sudden escalation in tensions in a region that supplies much of the world’s petroleum has roiled oil markets. The West Texas Intermediate, the American oil benchmark, rose 1.6 percent to $64.04 a barrel in futures trading. Shares also declined in Europe. Markets in Frankfurt, London and Paris were all down more than 0.5 percent.
But in the United States, the growing conflict hasn’t had a substantial impact on stocks, which are coming off one of the best years of recent decades. There was also some selling in the United States resulting from the rise in energy prices. Shares of companies with significant exposure to fuel costs —  shipping and logistics firms and airlines — fell.
Much of last year’s gain was driven by the Federal Reserve’s move to cut rates three times in 2019 after an ugly stock market sell-off in late 2018. Observers suggest that investors have grown increasingly confident that the Federal Reserve’s easy money policies will help cushion the market from any jolts, as it did last year in the face of the ongoing trade conflict with China. Shares in the discount retailers Dollar Tree and Dollar General, whose customers tend to have lower disposable income and higher sensitivity to increased gas prices, both dropped around 1 percent.
“Both the Federal Reserve and the administration seem more sensitive to the stock market than in previous decades and appear willing to take action to support the market, should it falter,” wrote David Kelly, the chief global strategist at J.P. Morgan Funds, in a research note Monday. Reflecting investor nervousness, yields on Treasury bonds — which move in the opposite direction of prices — dipped as investors sought out the relative security of government bonds. The yield on the 10-year Treasury note fell to 1.76 percent in early trading, before rebounding to close at 1.81 percent.
Such sentiment seems consistent with the performance of the stock market in recent days. Even after two consecutive days of declines, the market remains less than 1 percent below the record highs it hit on Jan. 2. Gold, traditionally viewed as a both a safe haven and a hedge against higher inflation, rose about 1 percent to finish at nearly $1,566 an ounce, the highest level since April 2013.
At Sigma Investment Counselors, in Northville, Mich., only a handful of clients had reached out to express concern about the rising tensions in the region, said Robert Bilkie, the chief executive officer at the money management firm. Still, the market reactions related to the growing risk of armed conflict in the Middle East were relatively subdued compared to past flare-ups. For instance, in September, after a strike on a Saudi Arabian oil production facility attributed to Iran, prices for Brent crude jumped 14 percent in a day.
“The Middle East matters far less to the U.S. today than a decade ago,” Mr. Bilkie said in an email. And as far as the American stock market is concerned, observers suggest that investors have grown increasingly confident that the Fed’s low-rate policies will help cushion the market from any jolts, as they did last year in the face of the ongoing trade conflict with China.
“Both the Federal Reserve and the administration seem more sensitive to the stock market than in previous decades and appear willing to take action to support the market should it falter,” David Kelly, the chief global strategist at J.P. Morgan Asset Managment, wrote in a client note Monday.