Turkey's foreign minister has said the government opposes U.S. sanctions on Iran. Yet, the stock market rally is far from slowing down.
Turkey’s foreign minister has reportedly said his government is decrying U.S. sanctions on Iran. Yet, pre-markets show the parabolic stock market rally is far from slowing down.
On January 8, following Iran’s firing of missiles at U.S. military bases in Iraq, the U.S. stock market plunged.
Dow Futures at the time indicated an initial 455-point drop, as geopolitical risks in the Middle East intensified.
Despite the potential negative impact of Iran’s deep-rooted conflict with the U.S. on the global stock market, the de-escalation of tension alleviated significant pressure from stocks.
But, the unexpected rejection of sanctions on Iran by Turkey poses a new risk to the on-going dispute between the U.S. and Iran.
While both countries have narrowly avoided a full-blown war, U.S. President Donald Trump’s consistent pressure on the Iranian government through his tweets led to extreme reactions from the Iranian government.
Merely three days ago, ABC News reported Iran’s Supreme Leader Ali Khamenei called President Trump “a clown,” indicating that the tension between the two countries has not dissolved in its entirety.
Turkey’s actions could further put additional stress on the current relationship between the U.S. and Iran. Any additional geopolitical risk at a phase of shaky de-escalation could place significant pressure on the stock market, once again.
According to pre-markets data, the U.S. stock market is not fazed by Turkey’s statement. The Dow Mini indicates that the Dow Jones Industrial Average will open with an increase of 100 points.
Since the turn of 2020, the Dow Jones is already up 2.57% and another strong day of trading in the stock market would take that to 2.9%.
As such, Alex Gurevich, former JPMorgan executive and CIO at HonTe Investments, said that there is nothing left to be afraid of in the stock market.
“This stock market couldn’t be brought down by impeachment, war, or pandemic. What is left there to be afraid of?” he said.
In the short-term, there are no fundamental factors that pose an immediate threat of a steep stock market correction.
In the medium to long-term, there are two variables that may significantly slow down momentum in the markets.
The two variables are the possibility of China unable to fulfill its purchase agreement of agricultural products with the U.S. and the rising price to earnings ratio of major companies.
The U.S. and China officially signed a phase one trade deal to prevent additional tariffs from being imposed. That removed burden on major industries including agriculture, manufacturing, tech, and cars.
If China is unable to purchase massive amounts of American farm products as stated in the agreement, it could lead to the U.S. restoring tariffs and further worsening the relationship.
That put together with the overvaluation of U.S. conglomerates given their rapidly increasing price to earnings ratio can lead to a sharp pullback in the medium term.