The cause of Iran's plane crash probably won't become clear in the near-term, but either outcome will be bad for the Dow.
It’s been a volatile week for financial markets as new developments in Iran continue to weigh on the US stock market. Early Wednesday, reports of a Boeing plane crash in Iran took the Dow lower in premarket trading.
Reports that it was due to a technical issue seemed to calm fears, though. But it appears that traders’ sigh of relief may have been premature as new reports suggest the cause of Iran’s plane crash is still unknown.
In any case, investors should buckle up because whether Iran’s military action or Boeing’s safety was responsible for the downed jet, the Dow is going to feel the pain.
A Ukraine International Airlines Boeing 737-800 jet went down early on Wednesday near Tehran’s international airport.
The plane crashed soon after Iranian missiles were fired at American military bases in retaliation against US airstrikes over the weekend.
That’s led many to question whether Iran’s military action was responsible for the tragedy.
An Iranian official has said the plane suffered an engine fire, after which the pilot was unable to regain control. Other Iranian news outlets described the accident as being caused by a technical problem with the plane, though no direct cause has been cited.
Ukraine’s Iranian Embassy issued a statement soon after the crash, saying an attack had been ruled out. That statement has since been replaced with a letter saying it’s too early to draw conclusions.
The lack of clear information has led to many different theories about the cause of the plane crash. OPS, an aviation risk assessment group, says that so far, evidence indicates that the plane may have been shot down.
The group pointed to photos of the crash site, saying they,
show obvious projectile holes in the fuselage and a wing section. Whether that projectile was an engine part, or a missile fragment is still conjecture.
The OPS noted that from a risk assessment standpoint,
[They] would recommend the starting assumption to be that this was a shootdown event, similar to MH17 – until there is clear evidence to the contrary.
The group also pointed out that the cause of the crash isn’t likely to be made clear anytime soon.
The current political climate in Iran means Boeing probably won’t have answers for some time. Ali Abedzadeh, the head of Iran’s Civil Aviation Organization, has been quoted as saying Iran refuses to hand over the plane’s “black box” to Boeing.
We will not give the black box to the manufacturer and the Americans.
No matter the cause, investors should buckle up for a bumpy ride.
The Dow is already under pressure from rising tension in the Middle East. If the Iran plane crash is deemed to be caused by military action, the market will likely see another slide as it could draw Ukraine, and potentially other nations, deeper into the conflict.
If the issue turns out to be a problem with the plane, the impact on the Dow could be equally as catastrophic. On Tuesday, the index was helped by Boeing’s impressive rally, but the planemaker would give up all of those gains and more if the problem is mechanical.
Boeing has been under the microscope in recent months not only because of its issues with the 737 MAX, but also because of structural problems with its 737 NG planes. Another Boeing plane crash due to a faulty aircraft would deepen concerns about the culture at Boeing, an incident that would be difficult to recover from.
For now, uncertainty seems to be tempering Boeing’s losses. But that could indicate that some traders believe the plane was shot down, a sentiment that would be bad for the wider market.
In that case, the US stock market will likely see even larger swings in the days ahead as instability in the region continues to wreak havoc on investor confidence.
The market is unlikely to have closure on the incident as the tension between Iran the US keeps the two from working together to determine the cause of the crash.
Rhetoric from both sides over the next few days will likely cause Boeing stock as well as the Dow itself to yo-yo between what traders perceive to be good and bad information.