Dow Jones Industrial Average (DJIA) futures are in free-fall mode early Friday morning as U.S.-Iran tensions soared to a new high after a Trump-sanctioned airstrike killed General Qassem Soleimani – who heads the elite Quds Force. A stock market bloodbath is in the cards today as Iran has vowed revenge for the airstrike near Baghdad airport.
The Dow and the broader stock market entered 2020 on a high thanks to a strong labor market and a rally in the index’s largest component – Boeing (NYSE: BA). But rising political tensions with Iran will knock the wind out of the stock market’s sails today. The U.S. is already urging citizens to leave Iraq as Iran’s Supreme Leader Ayatollah Ali Khamenei has warned Washington that the country will respond harshly.
Iranian foreign minister Mohammad Javad Zarif has already deemed the airstrike as a “violation of Iraq’s sovereignty.” This indicates that Iran might not be afraid to go to war against the U.S. given that tensions between the two countries have been mounting ever since Trump imposed sanctions on the country after withdrawing from the nuclear deal.
Dow Jones futures were down 348 points, or 1.21 percent, as of 5.56 am ET. This provides a clear indication that investors will be looking to take money off the table in light of the heightened tensions between Washington and Tehran.
S&P 500 futures are down 1.56 percent, while Nasdaq Composite futures are down 1.72 percent.
The latest chapter in the U.S.-Iran conflict has sent oil prices soaring. WTI crude oil is up more than 4 percent to nearly $63.7 per barrel. Brent crude oil has gained nearly 4.3 percent and is closing in on $70 per barrel.
The sharp spike in oil prices is not surprising as it is believed that a U.S.-Iran conflict has the potential to engulf the entire Middle East.
Such a situation could lead to increasing oil prices, and that would be bad for the U.S. economy. After all, higher oil prices at the pump have the potential to decrease consumers’ spending power and erode corporate earnings. This will negatively impact the Dow, which is why futures suggest that investors are all set to press the panic button today and send the market into a tailspin.
On the economic data front, ISM manufacturing data is expected today along with construction spending. The Institute for Supply Management’s purchasing manager’s index data could negatively impact the Dow today as manufacturing activity is expected to decline once again. Economists polled by the Dow Jones forecast a reading of 49 . A reading below 50 indicates contraction in the manufacturing sector. A reading below 50 would mean that the U.S. manufacturing sector has contracted for five straight months.
The Department of Commerce is expected to deliver some good news as analysts expect a 0.4 percent jump in construction spending . But last month’s decline of 0.8 percent in construction spending means that there is not much reason to be optimistic right now.
The Fed is scheduled to release the minutes from its meeting in December today. Any sign of an interest rate cut could have a balming influence on the stock market today and mitigate some of the negativity that the Dow faces in light of the tensions with Iran.
But if there is no concrete evidence of any further interest rate cuts today, then the conflict with Iran will remain the top headline and decimate the Dow and the stock market.