U.S. stocks were hit hard on Friday, declining from a record high after a U.S. military airstrike in Iran gave birth to fresh tensions in the Middle East. The airstrike, authorized by President Donald Trump, killed Iranian military commander Qassem Soleimani early on Jan 3 in Baghdad. This led oil prices to shoot up close to 4% on Friday. Also, a more-than-expected contraction in the U.S. manufacturing sector induced fears of an economic slowdown.
The three major indexes— the Dow Jones Industrial Average, S&P 500 and Nasdaq Composite — closed in the red on Friday. Dow hit 28,634.88 after losing 0.8%, the broader S&P 500 finished at 3,234.85 after declining 0.7% and the Nasdaq Composite closed at 9,020.77 after decreasing 0.8%.
The fear-gauge CBOE Volatility Index (VIX) rose 12.4% to close at 14.02 on Jan 3. Finally, decliners outnumbered advancers on the NYSE by a 1.17-to-1 ratio.
Iranian Commander Killed in U.S. Drone Strike
The death of Qassem Soleimani, chief of Iranian military operations in Syria and Iraq, marked a turning point in the United States’ relationship with Iran. U.S.-Iran relation had been rather rocky for the past year, given tensions over a 2015 nuclear deal, United States’ economic sanctions on the country and Iran shooting down a U.S. drone over the Strait of Hormuz in June 2019.
But now, Soleimani’s assassination has led to more fallout in U.S.-Iran relationship. Iran’s Supreme Leader Ayatollah Ali Khamenei declared three days of mourning on Friday. A day after, Trump threatened to hit 52 Iranian sites “very hard” if Iran attacked U.S. citizens or U.S. assets.
Soleimani’s body was returned to Iran on Jan 5. The very same day, Tehran said that the country would no longer abide by its 2015 nuclear agreement with world powers. President Trump had pulled the United States out of the pact in 2018. The nuclear deal limited Iran’s uranium enrichment, the amount of enriched uranium the country could stockpile, along with nuclear research and development.
Oil Prices Jumped on Brewing Middle East Tension
International benchmark Brent crude gained 3.6% to trade at $68.67 on Jan 3, following news of the Iranian military chief’s death. Oil price initially shot up as high as $69.50, but then decreased to settle at $68.67 a barrel.
U.S. West Texas Intermediate also gained 3% to settle at $63.05 per barrel after trading at $64.09 earlier in the session. WTI’s $64.09 was its highest price per barrel since April. Shares of W&T Offshore, Inc. (WTI - Free Report) , which is an independent oil and natural gas producer, rose 7% on Friday post the oil price spike. The company carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Manufacturing Sector Hits a Decade Low
According to the Institute for Supply Management, economic activity in the manufacturing sector lost steam in December. The December PMI registered 47.2%, a decline of 0.9 percentage point from the November reading of 48.1%. December’s reading is the lowest since June 2009.
Major reason behind the manufacturing sector’s poor performance are Boeing’s (BA - Free Report) production halt of its 737 Max jetliner and the aftereffects of a recent strike at General Motors (GM - Free Report) . In fact, the lingering trade war with China was the chief culprit behind the broad softness in manufacturing.
Construction Outlays Increase
According to the U.S. Census Bureau, Construction spending during November 2019 increased 0.6% from the revised October estimate. Construction spending was estimated at a seasonally adjusted annual rate of $1,324.1 billion in November, higher than the revised October estimate of $1,316.8 billion.
Major benchmarks touched record highs during the week. The Dow Jones Industrial Average and Nasdaq Composite gained 0.1% and 0.4% respectively. The broader S&P 500, however, lost 0.01%.
The first week of 2020 was quite eventful. The week witnessed strong investors’ optimism over a preliminary U.S.-China trade deal all set to be signed on Jan 15.
Investors also banked on positive economic data throughout the week, namely a decline in U.S. trade deficit in November, a decline in initial jobless claims for the week ended Dec 28 and a rise in pending home sales in November.
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