Inching Back. Stocks dropped on Friday as investors showed concerns after the U.S. killed a top Iranian military general. North Korean leader Kim Jong Un also dialed up the rhetoric against the U.S. lately after Washington refused to lift sanctions imposed on the country. Oil prices soared as futures traders worried about a shortage of crude supplies, while gold and Treasury bond prices rose as investors fled to havens. At the same time, U.S. manufacturing activity weakened again in December to spend the fifth month in contraction. In today’s After the Bell, we…
- watch stocks drop as fears over an intensified conflict with Iran flare up;
- check on commodity and bond prices as investors shy away from risk;
- and look at the latest U.S. manufacturing data in December.
Tensions Up, Stocks Down
All three major stock indexes fell on Friday as geopolitical tension once again came into the spotlight. The Dow Jones Industrial Average lost 233.92 points, or 0.81%, to end at 28,634.88. The S&P 500 dropped 23.00 points, or 0.71%, to close at 3234.85, and the Nasdaq Composite fell 71.42 points, or 0.79%, to end at 9020.77.
Maj. Gen. Qassem Soleimani, leader of the foreign wing of Iran’s Islamic Revolutionary Guard Corps, was killed by a U.S. military airstrike near the Baghdad International Airport. Mike Pompeo of the U.S. State Department said the strike was a response to an imminent attack on the U.S. embassy in Iraq last week. Pentagon said President Donald Trump had approved the attack and Soleimani “was actively developing plans to attack American diplomats and service members in Iraq and throughout the region.”
Soleimani’s killing was surprising, given his high position in Iran. Tehran has vowed harsh retaliation and markets were rattled as investors fear that the escalated tensions in the Middle East could lead to a regional war.
Crude prices skyrocketed immediately following the news. Brent oil futures for March delivery shot up 3.55% to settle at $68.60 per barrel, the highest level since mid-September following a missile attack on Saudi Arabia’s oil facilities. West Texas Intermediate crude for February delivery surged 3.06% to settle at $63.05 per barrel.
Safe-haven assets such as gold and U.S. Treasury debt also saw their prices rise as investors seek more safety amid the sudden escalation in geopolitical tensions. The price of gold rose 1.5% to $1,551.20 an ounce, nearing its September high. The 10-year Treasury yields, which move in the opposite direction to prices, tumbled 9.4 basis points to 1.788%.
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The domestic economic data aren’t helping either. The Institute for Supply Management reported on Friday that its manufacturing index—compiled from a survey of purchasing managers—slid to 47.2% in December from 48.1% in November, missing the consensus estimate. For the fifth straight month since August, the reading once again fell short of the 50 threshold, which signals a contraction in business activities. The index is now at the lowest level since June 2009—just as the U.S. was exiting the 2007-09 recession.
The deterioration in December can be partly attributed to the suspended production of Boeing’s (ticker: BA) troubled 737 Max jetliner and the impact from a recent strike at General Motors (GM). The ongoing trade war with China had also contributed to the weakness in the manufacturing sector. But with the “phase one” U.S.-China trade deal to be signed soon, companies should become a bit more optimistic and dial up business activities again.
The U.S. economy, overall, remains resilient, as manufacturing plays a relatively smaller role compared to the much larger services sector, which has been showing steady growth supported by the healthy jobs market and strong consumer confidence.
Write to Evie Liu at evie.liu@barrons.com
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January 04, 2020 at 05:25AM
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Dow Jones Industrial Average Fell as Iran and Oil Take Center Stage - Barron's
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