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Stock Market Bludgeons Gold’s Surge But the Dow Is at Trump’s Mercy Now

Last Updated September 23, 2020 1:28 PM
Josiah Wilmoth
Last Updated September 23, 2020 1:28 PM
  • The stock market rallied aggressively to erase an overnight plunge.
  • After surging toward a seven-year high, the gold price edged lower as markets digested last night’s escalation in US-Iran hostilities.
  • Trump’s Wednesday morning comments could upend that narrative.

The stock market secured a stunning recovery today, clawing its way back from brutal overnight losses that followed Iran’s flagrant attack on two Iraqi military bases.

The gold price recoiled in the wake of President Trump’s unexpectedly-tranquil response to the attacks, but a Wednesday morning briefing threatens to throw financial markets back into disarray.

Stock Market Rallies Aggressively Despite Iran Missile Strikes

US stock futures cratered overnight after Iran unleashed a barrage of missile strikes on Iraqi military bases housing American troops. Haven assets surged, launching the gold price above $1,600  to its highest level since March 2013.

stock market and gold price react to iran airstrikes
Stock futures (blue) and the gold price (black) fluctuated as traders digested Tuesday night’s missile launches. | Source: Yahoo Finance 

By the time the stock market opened on Wednesday morning, the picture had inverted. Stocks recouped almost all of their steep losses, while gold slid back toward $1,575.

As of 9:31 am ET, the Dow Jones Industrial Average had declined 58.96 points or 0.21% to 28,524.72. It was the only one of Wall Street’s three major indices reporting declines.

The S&P 500 climbed 4.58 points or 0.14% to 3,241.76.

The Nasdaq advanced 10.62 points or 0.12% to 9,079.2.

US Economic Data Print Impresses

President Trump’s surprisingly upbeat response to the attacks calmed the futures markets, and solid economic data provided fuel for the next leg of the rally.

ADP’s non-farm payrolls report shattered estimates, demonstrating that private payrolls had climbed by 202,000 jobs in December, compared to a Dow Jones economist estimate of 150,000.

adp non-farm payrolls report december 2019
US private payrolls ended the year with a fantastic reading. | Source: ADP 

That wasn’t the only good news. ADP also revised November’s figure upward to 124,000 from an initial reading of 67,000.

Fantastic gains in the services sector offset losses in manufacturing. That’s unsurprising; December’s PMI readings showed that the services sector continues to fortify the economy  against flagging industrial activity.

Dow Recovery Runs Headfirst into Another Boeing Crash

The Dow was the only major stock index lagging far behind. Its struggles had to do with Iran, though they appeared to be entirely unrelated to the simmering hostilities between Tehran and Washington.

A Boeing 737-800 crashed outside the Iranian capital city, shortly after taking off on a flight bound for Ukraine. All 176 passengers and crew members died in the crash, whose cause hasn’t yet been determined.

The crash pummeled Boeing stock, which remains under severe pressure after two fatal crashes led to worldwide groundings of a separate aircraft model, the Boeing 737 MAX, in early 2019.

Boeing is the most heavily weighted component in the 30-member Dow Jones Industrial Average – it’s larger than the six smallest stocks combined – so it’s unsurprising that the Dow struggled to rally alongside the S&P 500 and Nasdaq.

boeing stock, dow jones
Another tragic crash involving a Boeing plane sent BA shares into decline. | Source: Yahoo Finance 

The Stock Market Is at Trump’s Mercy Now

When word of the Iranian assaults spread last night, few would have expected the stock market to plow higher this morning. It’s a remarkable recovery, but that doesn’t necessarily mean it has staying power.

President Trump intends to brief the country later this morning, and his tone could vindicate the overnight rebound – or send stocks back into a tailspin. Investors should also brace for substantial oil and gold price volatility.

“Gold is paring some gains right now as the retaliation was not seen as aggressive as the markets thought it would be and investors are booking profit for that reason,” Saxo Bank analyst Ole Hansen told Reuters. “How gold will move from here is pinned on what US President Donald Trump says when America wakes up.”

Analysts disagree about how continued escalations in US-Iran hostilities would strike the stock market as a whole, though historical data suggest that the S&P 500 can recover quickly  from Middle East turmoil.