The Story Begins on a Friday
The first Friday of 2020 opened as a victory lap and closed as a risk assessment. Stocks had come off a bullish start to the year and the blockbuster gains of 2019, and then a U.S. airstrike killed a top Iranian general, Gen. Qassem Soleimani, sparking fears that hostilities in the Middle East would escalate. What unfolded was not a crash but a collective step back: benchmark indexes fell, oil prices surged, and money moved toward the classic refuges of uncertain times, gold and the yen.
What the Close Said
The numbers at the closing bell were measured rather than ugly. The S&P 500 finished down 23 points, a 0.7% slip, at 3,235, while the Dow and the tech-heavy Nasdaq each lost 0.8%. Analysts reading the tape found caution more than fear; investors, they said, did not appear to be panicking in the wake of the attack. “A big fat dollop of geopolitical uncertainty has landed on investors desks,” Jeffrey Halley of Oanda said in a report. The killing of Soleimani raised expectations that Iran would retaliate against Israeli and U.S. targets across the region, and that wait, more than the strike itself, was what markets were pricing.
The History in the Room
The anxiety had a backstory. In the past, the United States had blamed Iran for attacks on tankers and for an assault on Saudi Arabia’s oil industry in September, an attack that briefly halved the kingdom’s production. Analysts on Wall Street speculated oil prices would take the biggest hit from a fresh escalation, while a broader conflict would drag on stocks generally, a distinction that showed up in the day’s own split between surging crude and sliding equities. The caution was global: stock markets in Asia and Europe declined as well.
What the Analysts Urged
For those involved, the advice was to treat the moment as structural, not episodic. Height analyst Clayton Allen told investors he “would urge investors to frame this event not as another one-off military action that will fade from the news cycle, but as a significant event in the US-Iranian relationship that will alter the Middle East substantially”. Ian Shepherdson, chief economist at Pantheon Macroeconomics, sketched the trade that follows from that view, telling clients to e”pect defensive stocks to outperform, with downward pressure on Treasury yields and gains for safe-haven currencies, until Iran’s response becomes clear” Until that answer arrived, the day’s modest close stood as Wall Street’s opening position: down, defensive, and watching.
