US Secretary of State Mike Pompeo said Iran would make "a big mistake" if it retaliated against American forces
US Secretary of State Mike Pompeo said Iran would make "a big mistake" if it retaliated against American forces AFP / SAUL LOEB

KEY POINTS

  • Trump vowed Iran will never obtain nuclear weapons
  • U.S. stocks rebounded Monday from early losses
  • Some analysts think markets have already discounted any damage from Iran crisis

U.S. stocks finished higher, rebounding from earlier lows, despite worries Iran will retaliate following last week’s U.S. drone strike in Baghdad that killed Iranian Gen. Qassem Soleimani. Crude oil prices eased from their recent spike.

The Dow Jones Industrial Average gained 68.67 points to 28,703.55 while the S&P 500 rose 11.44 points to 3,246.29 and the Nasdaq Composite Index jumped 50.7 points to 9,071.46.

Crude oil futures were down 0.52% at $62.72 per barrel and Brent crude dropped 0.9% at $68.29. Gold futures gained 0.98%.

Volume on the New York Stock Exchange totaled 2.72 billion shares with 1,538 issues advancing, 118 setting new highs, and 1,398 declining, with seven setting new lows.

Active movers were led by NIO Inc. (NIO), General Electric (GE) and Nokia (NOK)

Iran said in retaliation for the killing of Soleimani it will ignore the uranium-enrichment limits established by the 2015 nuclear deal. Donald Trump responded on Monday by tweeting that Iran will never develop atomic weapons.

Trump said Sunday he may slap Iraq with heavy sanctions after the Parliament passed a resolution that called for the expulsion of foreign troops.

“We have a very extraordinarily expensive airbase that’s there. It cost billions of dollars to build. Long before my time. We’re not leaving unless they pay us back for it,” Trump said.

Secretary of State Mike Pompeo warned on Sunday the U.S. military could strike more Iranian leaders if Teheran retaliates for the killing of Soleimani.

But some analysts contend that the economic damage from this latest geopolitical crisis might be limited.

“If you were looking for a reason to sell, you got one [in the Soleimani killing],” said Art Hogan, chief market strategist at National Securities. “But the fundamental backdrop hasn’t changed in front of our eyes. The market has done exactly what it should do,” he added.

Kristina Hooper, chief global market strategist at Invesco, said the Federal Reserve’s continuing support for the U.S. economy may help to weather future calamities even 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 said. “The fact that the Fed is being very accommodative, in maintaining three [interest 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.”

In addition, Stephen Innes, chief market strategist at AxiTrader, indicated U.S. equity markets “tend to rally whenever the U.S. begins military operations overseas.”

Moreover, Ed Yardeni, president and chief investment strategist at Yardeni Research, said in a note: “Our outlook remains optimistic and bullish. Geopolitical crises tend to create buying opportunities in the stock market as long as they don’t trigger a recession. We don’t believe that Iran will disrupt oil supplies significantly now that the U.S. has demonstrated a willingness to use lethal force to deter Iran’s mischief-making in the Middle East.”

In economic news, the IHS Markit Services Purchasing Managers' Index final estimate for December improved to 52.8 from 52.2 in the prior estimate and 51.6 in November.

"Business activity in the vast service sector picked up pace at the end of last year as rising domestic demand and signs of reviving exports led to higher workloads," said Chris Williamson, chief business economist at IHS Markit. "Combined with indications of manufacturing lifting out of its recent lull, the survey data suggest the overall pace of economic growth accelerated to its fastest since last April."

Overnight in Asia, markets finished lower. China’s Shanghai Composite slipped 0.01%, while Hong Kong’s Hang Seng fell 0.79%, and Japan’s Nikkei-225 dropped 1.91%.

In Europe markets traded lower, with Britain’s FTSE-100 down 0.62%, France’s CAC-40 off 0.51% and Germany’s DAX dropping 0.7%.

The euro rose 0.3% at $1.1194 while the pound sterling gained 0.66% at $1.3166.

The yield on the 10-year Treasury rose 1.29% to 1.811% while yield on the 30-year Treasury gained 1.42% to 2.281%.