U.S. stocks fell on Friday, but were off their session lows by midsession, after investors reacted to escalating tensions in the Middle East and a U.S. manufacturing activity index plumbing its lowest level since June 2009.
What’s driving the market?
The Dow Jones Industrial Average DJIA, -0.72% was down 167 points, or 0.6%, to 28,701. The S&P 500 SPX, -0.58% fell 14 points, or 0.4%, to 3,244. The Nasdaq Composite COMP, -0.63% slipped 33 points, or 0.4%, to 9,059.
See: Oil prices skyrocket, stock futures sink after top Iranian general killed by U.S. airstrike
The investor flight from risky assets toward traditional safe havens, including gold and U.S. Treasurys, stood in contrast to market action on Thursday, which saw all three major U.S. stock indexes post strong gains to end the first trading session of 2020 at records.
The Dow on Thursday advanced 330.36 points, or 1.2%, to end at 28,868.80, while the S&P 500 rose 27.07 points, or 0.8%, to close at 3,257.85. The Nasdaq Composite jumped 119.58 points, or 1.3%, to end at 9,092.19.
What’s driving the market?
The Pentagon confirmed late Thursday that the U.S. military had killed Qassem Soleimani, the head of Iran’s Islamic Revolutionary Guard’s Quds Force, and said the strike was aimed at deterring future Iranian attacks.
Iran’s supreme leader, Ayatollah Ali Khamenei, declared three days of mourning for Soleimani’s death and said that a “hard revenge awaits criminals.” The prospect of sharp retaliation by Iran could keep market participants unnerved in the coming days and weeks.
President Donald Trump also issued a slew of tweets and said that Soleimani “should have been taken out many years ago.”
Read: Who was Qassem Soleimani, and why is his death a major development in U.S.-Middle East relations?
“The initial reaction will lead to a risk-off for equity markets and upward pressure on oil prices,” Steven Chiavarone, portfolio manager at Federated Investors, told MarketWatch. “But what we don’t know is the timing and severity of Iran’s expected reaction.”
Chiavarone said the traditional playbook for investors was to look past such jitters unless it appeared to impede global economic growth. More important to the bull market’s momentum was the direction of growth, how much stimulus central banks provided, and if trade tensions continued to wane with the forging of the phase one tariff deal between the U.S. and China, he said.
Worse-than-expected U.S. manufacturing data underlined risks to economic growth. The Institute for Supply Management’s closely watched December U.S. manufacturing purchasing managers index fell to 47.2%, its lowest since June 2009, from a reading of 48.1% in November, leaving the gauge in contraction territory. Economists surveyed by MarketWatch, on average, had expected the index to rise to 48.8%.
Also read: Iran vows ‘harsh’ response to killing of top general as U.S. tells citizens to leave Iraq
Separately, U.S. November construction activity rose by 0.6%, a sharp increase from the 0.1% rise registered in October.
Meanwhile, minutes of the Federal Reserve’s December meeting are set for release at 2 p.m. Eastern.
Investors are also due to hear from a number of Federal Reserve officials, including Fed Gov. Lael Brainard, San Francisco Fed President Mary Daly and Dallas Fed President Robert Kaplan, who are attending an economic conference in San Diego.
Chicago Fed President Charles Evans told CNBC on Friday that he remained upbeat on the economy and expected U.S. gross domestic product to expand between 2% to 2.25% in 2020, despite the contraction in manufacturing.
Which stocks were in focus?
The surge in oil prices sent airline stocks lower as higher fuel costs could crimp their earnings. Shares of American Airlines Group Inc. AAL, -4.55% fell 3.1%, Delta Air Lines Inc. DAL, -1.88% dropped 1.9%, and United Airlines Holdings Inc. UAL, -2.11% shed 2%.
Shares of U.S. energy companies gave up their early gains. The SPDR Energy Select Sector ETF XLE, -0.46% was virtually flat. Exxon Mobil Corp. XOM, -0.82% fell 1%, Occidental Petroleum Corp. OXY, +2.05% hiked up 1.7% and Marathon Oil Corp MRO, +0.11% was down 0.4%.
Tesla Inc.’s stock TSLA, +3.23% gained 3.7% after the electric vehicle maker reported delivery data that met its full-year guidance. For 2019, Tesla said it delivered 367,500 vehicles, within its guidance range of 360,000 to 400,000 vehicles.
Incyte Corp.’s stock INCY, -10.19% slumped more than 10% after the company said a key study of an experimental drug failed to hit its goal.
How are other markets trading?
Oil futures jumped, with U.S. benchmark West Texas Intermediate crude for February delivery CLG20, +3.09% up by 2.6%.
Need to Know: Why oil could hit $80 even without a ‘full-blown’ U.S.-Iran war
Haven-related buying was credited with pushing gold futures GCG20, +1.47% up by 1.5%. The yield on the 10-year U.S. Treasury note TMUBMUSD10Y, -4.28% dropped 7.5 basis points to 1.81%.
As for currencies, the yen USDJPY, -0.44% strengthened against the dollar by 0.2% to trade at ¥108 to the dollar. The ICE U.S. Dollar index DXY, +0.02% , which measures the greenback’s strength against its six major rivals, was nearly flat at 96.81.
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January 04, 2020 at 01:30AM
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Stock-market losses ease as investors digest Middle East tensions and weak U.S. factory data - MarketWatch
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