A punishing Dow Jones setback was inevitable today after a US drone strike killed Iran’s most powerful military leader and escalated Middle East tensions.
Adding to the pressure on stocks was yet another miss in ISM manufacturing, which Nordea suggests could be due to ongoing problems with Boeing’s 737 MAX jet.
Following close behind, the Nasdaq and S&P 500 were both under pressure, with losses of 0.64% and 0.58%, respectively.
Commodity markets were full of volatility as Wall Street nervously awaited an inevitable response from Iran and the US deployed an additional 3,500 troops to the region. The price of gold exploded higher yet again with a 1.5% rally, while the Japanese yen – a fellow haven asset – also climbed.
Crude oil is always sensitive to tensions in the Middle East. It popped more than 3% higher on the day, bolstered by a considerable draw in inventories.
Bitcoin managed to reverse its recent losses, moving powerfully through the $7,000 handle.
With Donald Trump spamming Twitter with hawkish commentary and the mainstream media endlessly debating the outcome of the recent killing of Qassem Soleimani, it was a stressful day for Dow bulls dreaming of another New Year’s rally.
Unfortunately for the Dow Jones, even if there had been no geopolitical escalation, US macro data was concerning once again. ISM Manufacturing PMI managed just a 47.2 reading, highlighting the continued contraction of the sector.
In a report from Nordea, analysts warned of serious underlying issues in the US economy. They painted a bleak picture for the stock market in 2020, stating,
The grim report was a bit surprising given the fact that the phase-one trade war deal passed in December, financial conditions eased, and regional indices were more upbeat. In our view, this supports the narrative that something is boiling underneath and that the US economy is showing broader signs of weakness.
Of particular relevance to the Dow were Nordea’s comments that problems for Boeing’s infamous 737 MAX jet could be affecting the ISM reading. Alarmingly, they think things might be set to get worse in the next release.
Some of the weakness in the ISM figures can probably be attributed to the production shutdown of Boeing’s 737 MAX aircraft from January… Still, we should not have seen “the worst” effects yet, with the production, inventory, and employment components probably being even more negatively affected in January.
Every member of the Dow 30 was in the red at some point on Friday, as stock markets struggled worldwide.
Global bellwether Caterpillar (NYSE: CAT) was one of the worst-hit DJIA components, dipping more than 1.85%.
Apple (NASDAQ: AAPL) stock was faring better than most, as it held onto the historic $300 level for most of the day.
The Dow Jones’ most heavily weighted stock, Boeing, was struggling again, down 0.3%.
Dow Inc. (NYSE: DOW) extended its position as the new decade’s worst-performing stock, with a 2% drop that puts it more than 3% in the red for 2020.
Last modified: January 22, 2020 11:40 PM UTC