Tension remains elevated in the Middle East and beyond after Iran fired over a dozen missiles at U.S. military targets in Iraq. It could be a long day. Take a deep breath.
At one point overnight Dow futures dropped 400 points and other indices tracked a similar broad-based decline before coming all the way back. Oil, meanwhile, surged 4% briefly before it became clear that many of the missiles failed en route to their targets and an immediate retaliation from Washington wasn't coming.
What I'm hearing revolves around two separate stories, the market and the Middle East. The market was already looking a little tired, so some traders are using the headlines as an exit opportunity.
However, a lot of stocks are coming back strong as other investors decide to profiteer from U.S.-Iranian tensions. Opportunities are unfold fast in defense stocks and ETFs.
After all, the Middle East has seen much worse in recent memory, so the overnight pressure largely evaporated before morning. This is life as usual for the region: not great, but not apocalyptic either.
Odds are good that this was simply Iran giving the people what they want after the killing of Revolutionary Guard Gen. Qassem Soleimani by a U.S. airstrike last week. In that scenario, the door is now open for the tension to de-escalate.
All Washington needs to do is resist the urge to fire back. Unfortunately, the odds of someone deciding to double down are far from trivial.
That's not great for the long-term market mood. But even if these reprisals continue on both sides, we're a long way from the world where a belligerent player in the region could wreck the global economy.
The United States is energy independent now where it wasn't in the 1970s. That's huge. Other countries may feel the pain of a disruption in Persian Gulf shipping but domestic shale producers will simply open the spigot a little wider and keep the lights on here.
Watch for the spread between U.S. West Texas crude and international Brent to widen. But don't bet on gold spiking. The days of OPEC oil shocks are over.
But the day could still get bumpy. Keep your eyes open and be ready to guide nervous clients through the worst of it.
“It’s not going to be pretty today," Stephen Innes, chief Asia market strategist at AxiTrader, said in a note. “Global equities are being hit, and the need for defensive strategies is paramount. There is no denying the enormity of long-term geopolitical repercussions of the latest events as oil, bond, and gold defensive strategy flows are providing the lead-in for the local cash market opens.”
