Tensions between the US and Iran eased on Wednesday, lifting the Dow Jones as Trump appeared to favor economic sanctions moving forward.
The Dow Jones shook-off rough risk sentiment overnight to post an impressive rally on Wednesday as storm clouds eased over the US-Iran standoff.
It was more than just geopolitics driving the stock market, though. An impressive ADP non-farm employment figure helped shield the Dow from another potential Boeing (NYSE: BA) crisis and a considerable drop in Walgreens (NYSE: WBA) stock.
All three major US stock market indices were in the green on Wednesday. The Nasdaq led the way with a 0.87% gain, and the S&P 500 moved 0.73% higher.
The Dow split the difference, rising 230.59 points or 0.81% to 28,814.27.
It was a full-blown bloodbath in energy markets as oil lost 5% of its Iran-inspired gains. Fueling the losses was an unexpected 1.1 million barrel rise in crude inventories in the US.
As concerns surrounding a possible open conflict between the US and Iran escalated to a new height overnight, there was distinct risk aversion in Dow futures. These fears quickly faded.
Economists at Lloyds believe that the time for brinkmanship is over and are optimistic that the stock market once again has a green-light:
The overnight retaliatory airstrike by Iran on US populated airbases in Iraq saw a sharp ‘risk-off’ move in markets, but the almost immediate comments from Iran saying that the process was now concluded and a POTUS tweet saying “all is well,” has seen the market turnaround from a number of key levels…
We hope this situation calms down, and the market’s focus can turn back to fundamental data and the optimism that carried over from 2019.
Trump has opted to impose additional economic sanctions on Iran, strongly hinting that the military escalation is now over.
If markets feel comfortable about geopolitical risk, they can once again focus on the fact that employment data releases continue to look very strong.
The latest ADP non-farm employment figures were impressive, breaching the 200,000 level and smashing forecasts by 42,000 jobs.
In line with the robust health of this metric, Fed funds futures are pricing in a small 10% probability of an interest rate hike at the next meeting, compared to a 0% probability of a cut.
Up over 230 points at its peak, the Dow 30 could have been even higher were it not for the index’s most heavily weighted stock, Boeing (NYSE: BA) taking a 1.2% hit. The catalyst for this slide in BA stock was a horrendous crash in Tehran that killed everyone on board.
While the plane bore the 737 name, it was not the MAX model that has been at the center of a regulatory firestorm. Nonetheless, Boeing already faced an uphill battle to restore public faith, and this disaster couldn’t have come at a worse time.
Boeing was a definite anchor on the Dow’s performance in 2019, and after last night’s crash, the outlook for 2020 has certainly gotten bleaker.
Another issue for the Dow Jones was a massive 5.75% decline in Walgreens (NYSE: WBA) stock. Falling heavily after its earnings missed estimates, the beleaguered company is once again a “Dog of the Dow,” down roughly 5.5% year to date.
Apple (NASDAQ: AAPL) continues to be the wind in the stock market’s wings. The tech giant is continuing where it left off in 2020 after a monster 80% gain in 2019.
Fueling the 1.54% AAPL rally appears to be the huge success of the AirPod headphones, which are proving to be an iconic product and provide growth even though iPhone market share has moved sideways.
This article was edited by Josiah Wilmoth.
Last modified: January 22, 2020 11:39 PM UTC