Stocks jump and oil prices fall as U.S.-Iran conflict eases

Jan. 8, 2020 2:23 PM PT

Markets unclenched Wednesday, and U.S. stocks neared record highs on hopes that the United States and Iran were backing away from the edge of war.

The rally capped a whirlwind day of reversals that swept through markets around the world. Stocks initially reeled after Iran fired missiles at two bases in Iraq housing U.S. troops — retaliation for a U.S. drone strike that killed a top Iranian general last week.

Gold prices soared overnight as investors scrambled for safety; crude prices jumped on fears a war would squeeze oil supplies; and the futures market suggested U.S. stocks would drop sharply as soon as trading opened in New York. But the selling abated as reports suggested no Americans died and after Iran’s foreign minister said his country had concluded “proportionate measures in self-defense.”

When trading opened, the Standard & Poor’s 500 index climbed modestly, and it more than tripled its gain after President Trump confirmed that no Americans were hurt and that Iran “appears to be standing down.”

Trump said he’d add economic sanctions on Iran, but he also said the United States is “ready to embrace peace with all who seek it.” That fit with the market’s hopes that no further military escalations may be on the way, at least for now.

Crude oil ended up slumping sharply, and gold fell for the first time in 11 days. Treasury yields rose in a sign of optimism, and a measure of fear in the stock market eased.

The S&P 500 ended the day up 15.87 points, or 0.5%, at 3,253.05. It was up as much as 0.9% earlier in the day and was on track to set a record, but the gains moderated in the last half-hour of trading.

The Dow Jones industrial average rose 161.41, or 0.6%, to 28,745.09. The Nasdaq composite rose 60.66, or 0.7%, to 9,129.24 — a record.

The stock market has historically bounced back quickly from geopolitical shocks as long as they don’t result in a war and recession, said Linda Duessel, senior equity strategist at Federated Investors.

“Geopolitical shocks have resulted in sharp, short pullbacks, much of which is recovered in the next few months, and I suspect everyone in this business knows that data point and uses any opportunity to buy up stocks,” she said.

With central banks around the world pushing stimulus and U.S. households remaining resilient amid a solid job market, Duessel said she thinks the U.S. economy is likely to keep growing unless an actual war breaks out or inflation unexpectedly bursts higher.

“You don’t get into trouble in the market unless recession is on the horizon,” she said, “and we have a very hard time putting together a scenario where we have a recession anytime soon.”

A government report due out Friday will give an update on the health of the job market, which has been key in propping up the economy despite weakness in manufacturing caused by Trump’s trade wars. Economists expect Friday’s report to show that employers added 160,00 jobs last month, and a report out Wednesday suggested private-sector hiring may have been stronger in December than economists forecast.

Benchmark U.S. crude jumped as high as $65.65 a barrel in overnight trading, when worries about possible disruptions to oil supplies were at their peak. But the price sank through the day, with losses accelerating after a U.S. government report showed that oil supplies in inventories rose last week.

Benchmark U.S. crude sank $3.09, or 4.9%, to $59.61 a barrel. Brent crude, the international standard, slid $2.83, or 4.1%, to $65.44 a barrel.

Gold had a similar whipsaw day. It had climbed as high as $1,604.20 an ounce in overnight trading before settling at $1,557.40, down $14.40.

Stock indexes slumped in Asia, but the selling eased as trading moved westward through the day. Indexes in Europe posted some gains.

The yield on the 10-year Treasury sank as low as 1.70% when worries were at their highest, but they climbed through the day and were at 1.87% in afternoon trading, up from 1.82% late Tuesday. Treasury yields tend to rise with investor optimism about the economy’s prospects.

Walgreens Boots Alliance fell 5.8% — the biggest loss in the S&P 500 — after reporting weaker quarterly earnings than analysts expected.

In commodities trading, wholesale gasoline fell 7 cents to $1.65 a gallon. Heating oil fell 7 cents to $1.96 a gallon. Natural gas fell 2 cents to $2.14 per 1,000 cubic feet.

Silver fell 23 cents to $18.09 an ounce. Copper rose 2 cents to $2.82 a pound.