Well — so much for smooth sailing, near term. We began the year 2020 with clear skies and a partial end to the U.S.-China trade war on the horizon, but a couple bomb strikes in the Middle East have re-set this table. Following major indexes selling off 3/4 of a percent Friday, today’s pre-market activity is again notably in the red.
With only one notable economic report due out later this morning — Markit Services PMI for December — market analysts have few places to turn other than news headlines in order to determine market direction. And these news headlines have definitely been sunnier than they are today: the biggest anti-U.S. demonstrations in 40 years are taking place in Iran following the U.S.-ordered killing of Qasem Suleimani, Iraq now threatens to expel U.S. forces from its country while the Pentagon sends thousands of fresh soldiers back to the region. While it’s tough to say what happens next, the seeds of geopolitical uncertainty have no doubt been sown.
President Trump has threatened to attack 52 cultural sites if Iran retaliates against the U.S. after the death of its top general, Suleimani, while Trump also has called for heavy sanctions against Iraq if it were to kick the U.S. out. The president has also said, conversely, that he does not wish to see elevated conflict in the Middle East, acknowledging his political base here at home does not have an appetite toward re-escalation of U.S. war in the region. And this adds to an already politics-rich narrative for 2020 here at home, both with a General Election in November and Trump’s impeachment in Congress still pending.
Pre-market futures had been down as much as 200 points on the Dow, 70 points on the Nasdaq and 20 for the S&P 500. Early traders have dialed these back a bit at this hour, but some positive resolve in the face of these geopolitical realities taking shape would go a long way toward climbing back into the green.
We are also, not unexpectedly, seeing oil and gold prices rise notably: the West Texas Intermediate (WTI) price per barrel is up another 1% this morning, approaching levels not seen since April of last year. Brent crude prices are once again approaching $70 per barrel, up 1.3% so far this morning. Gold prices may reach the highest they’ve seen in 7 years, nearing $1600 per ounce. These are clear investment hedges in case our global issues take a turn southward.
The good thing is that our domestic economy — especially employment and consumer confidence — remains in an historically strong place. And for right now, it’s important to understand the weakness we’re seeing this morning in equities does not reflect anything concrete, just a mitigation of risk from recent all-time highs.
In short, the sky is not falling. And with earnings season around the corner, better-than-expected results from our top companies ought to cool plenty of burn.