U.S. stocks staged a U-turn on Monday to close at session highs, clinching their biggest intraday comeback in three months, as investors brushed aside concerns about escalating tensions in the Middle East.
How did benchmarks perform?
The Dow Jones Industrial Average (DOW:DJIA) advanced 68.50 points, or 0.2%, to close at 28,703.38, while the S&P 500 index (S&P:SPX) rose 11.43 points, or 0.4%, to end at 3,246.28. The Nasdaq Composite Index (AMERICAN:COMP) gained 50.70 points, or 0.6%, finishing at 9,071.46. All three benchmarks opened the session firmly lower.
On Friday, the Dow shed 233.92 points, or 0.8%, at 28,634.8. The S&P 500 fell 23 points, or 0.7%, to 3,234.85. The Nasdaq Composite slipped 71.42 points, or 0.8%, to 9,020.77. All three benchmarks finished off their lows for the session, however.
At their lowest points on Monday, the Dow was down 0.9%, the S&P 0.6% and the Dow 0.8%, before pulling off their best single-day comeback since Oct. 3 for each benchmark and their second-highest closes on record, according to Dow Jones Market Data.
What drove the market?
Appetite for stocks perked up Monday as investors looked past escalating tensions in the Middle East following the killing of Iranian Major Gen. Qassem Soleimani by the U.S. on Iraqi soil last week and its effect on geopolitics in the oil-rich region.
“We’re just slightly off all-time highs, even with all the rhetoric and military issues that have occurred over the last few days,” said Brett Ewing, chief market strategist of First Franklin Financial Services in Tallahassee, in an interview with MarketWatch. “That’s a very bullish sign.”
Equity benchmarks reversed earlier losses despite mounting Middle East tensions as President Donald Trump threatened sanctions and said he wouldl demand compensation from Iraq for U.S. military forces if Baghdad follows through on draft legislation to push American forces out of the country following the killing of Soleimani.
Separately, the president said that the U.S. is prepared to target 52 Iranian sites if Iran strikes any Americans or American assets.
Soleimani was the head of Iran’s Islamic Revolutionary Guard’s Quds Force, and the U.S. has said the strike was aimed at deterring future Iranian attacks orchestrated by the top general.
But even with mounting tensions between Iran and the U.S., Kristina Hooper, chief global market strategist at Invesco, said investors shouldn’t discount the Federal Reserve’s ongoing support, including if “the situation with Iran were to worsen and create any sort of destabilization.”
“We can’t lose sight of how powerful the Fed is,” she told MarketWatch. “The fact that the Fed is being very accommodative, in maintaining three insurance rate cuts, even though it looks like we are going to get a ‘phase one’ trade deal [with China] soon, suggests a very accommodative monetary policy in 2020.”
There’s also reason to hope that the conflict won’t have lasting impact on the market. “Certainly things can get very ugly and snowball, but from what we’re seeing, investors are discounting it and really focusing on stock fundamentals,” Sahak Manuelian, managing director of equity trading at Wedbush Securities, told MarketWatch, of rising U.S.-Iran tensions.
“We’re seeing flows come back into FAANG and tech-related names,” he added.
Looking ahead, Chinese officials were set to arrive in Washington on Jan. 13 for a four-day meeting with U.S. counterparts, to sign a preliminary trade pact to end their protracted tariff conflict — a trade clash that had been a the center of investors’ minds before the Mideast worries. The South China Morning Post reported that China had planned to arrive earlier, but delayed their plans after President Trump announced a Jan. 15 date for the signing of the deal.
Over the weekend, Chinese Foreign Minister Wang Yi reportedly urged restraint and said it opposed the use of force in international relations, according to a post on the website of China’s Foreign Ministry . The report also indicated that Yi spoke to Iranian Foreign Minister Javad Zarif.
Which stocks were in focus?
Boeing Co. is considering plans to raise more debt to bolster finances strained by the grounding of its 737 MAX jets, according to The Wall Street Journal. Shares of the airplane maker and defense contractor advanced 0.3% Monday.
Shares of fellow Dow component Apple Inc . (NAS:AAPL) gained 0.8%, after six consecutive weeks of gains during which the consumer electronics company’s stock rose more than 11%.
Goldman Sachs Group Inc . (NYS:GS) and Morgan Stanley (NYS:MS) are being investigated by the Bank of England, Sky News reported Saturday . A Financial Times report Sunday said the reviews were focused on the banks’ financial reporting practices. Goldman shares advanced 1% Monday, while Morgan Stanley shares fell 0.4%.
Bed Bath & Beyond Inc . (NAS:BBBY) shares were in focus after The Wall Street Journal reported that the home-goods retailer has signed a deal to sell roughly half its real estate to a private-equity firm and lease back the space in a transaction that will generate more than $250 million in proceeds. Its shares gained 3% Monday.
Shares of Cal-Maine Foods Inc . (NAS:CALM) skidded 7.9% Monday, after the egg producer reported a surprise loss during its fiscal second quarter, while sales fell 10.7%.
How did other markets trade?
Oil futures climbed more than 3%, with the U.S. benchmark West Texas Intermediate crude for February delivery settling up 0.4% at $63.27 a barrel, after finishing Friday at its best level in more than seven months.
Gold prices closed near a seven-year high at $1,568.8 ounce, up 1.1%, according to FactSet data.
In Asia overnight, stocks closed lower, with the China CSI 300 (CHINA:XX:000300) declining 0.4%, Japan’s Nikkei 225 (NIKKEI:JP:NIK) ending the session 1.9% lower and the Hang Seng (HONG:HK:HSI) own 0.8%.
In Europe stocks also came under pressure, as reflected by the 0.4% decline in the Stoxx Europe 600 (STOXX:XX:SXXP) .