Investors keep eye on Middle East tensions
U.S. stock benchmarks ended slightly lower Tuesday, as concerns about the possibility of war in the Middle East overshadowed favorable U.S. economic data.
How did benchmarks perform?
The Dow Jones Industrial Average DJIA, -0.42% shed 119.70 points, or 0.4%, at 28,583.6, while the S&P 500 SPX, -0.28% lost 9.10 points, 0.3%, at 3,237.18. The Nasdaq Composite Index COMP, -0.03% gave up 2.88 points, or less than 0.1%, at 9,068.58.
On Monday, the Dow DJIA, -0.42% advanced 68.50 points, or 0.2%, to close at 28,703.38, while the S&P 500 SPX, -0.28% rose 11.43 points, or 0.4%, to end at 3,246.28. The Nasdaq Composite Index COMP, -0.03% gained 50.70 points, or 0.6%, finishing at 9,071.46.
All three benchmarks finished two of the past three trading days lower, but still closed Tuesday 1% or less from all-time record closes, according Dow Jones Market Data.
What drove the market?
Energy names were the biggest drag on the Dow, with shares of Chevron Corp. CVX, -1.28% and Exxon Mobil Corp. XOM, -0.82% among the top five contributors to the benchmark’s more than 100 point drop, according to FactSet data.
Chevron, America’s No. 2 oil, company said in a statement Monday that it evacuated all its American oil workers from Iraq following rising tensions in the region, following steps by Exxon to withdraw all of its employees from oil fields in southern Iraq.
The leg lower for the Dow came despite some slightly brighter U.S. economic data and as Wall Street looks ahead to the corporate earnings reporting season for further clues about the health of the economy.
“We are waiting for some of the earnings data to kick in over the next several weeks,” said Jeff Kleintop, chief global investment strategist at Charles Schwab, in an interview with MarketWatch. “Last year, people started pricing in a better 2020 and now we have to see if that is delivered.”
Earlier Tuesday, data showed a rise in activity in the American economy’s huge services sector at year end. The U.S. ISM service sector index rose to a four-month high of 55 in December, according to the Institute for Supply Management. The U.S. Commerce Department also said the trade deficit narrowed in November to a 3-year low, but factory orders fell 0.7% in November, marking the third decline in four months.
Shares of Boeing Inc.gained on rumors a high-profile investor was building a position in the beleaguered aircraft maker.
Meanwhile, investors were digesting rising tensions in the Middle East prompted by the killing of top Iranian Maj. Gen. Qassem Soleimani by the U.S. on Friday.
President Trump said the U.S. remains prepared to attack if Iran retaliates against America, but walked back a threat to target the country’s cultural sites, while speaking at a White House press briefing Tuesday afternoon.
U.S. Defense Secretary Mark Esper on Tuesday said he expects retaliation by Iran in some way, adding that the U.S. isn’t seeking war with the Islamic Republic but would be “prepared to finish one.”
“We’re not surprised to see a bit of a pullback from the standpoint that through December the market got really overbought,” Bob Phillips, managing principal of Indianapolis-based Spectrum Management Group, told MarketWatch.
But he also expects another “decent year” for stocks, thanks to the Federal Reserve’s ongoing support and the prospects for positive corporate earnings growth.
“There’s always been a back-and-forth” with Iran for the past 40 years, Phillips said.
In that vein, market participants are judging geopolitical tensions as not yet sufficient to knock U.S. stocks too far below recent records.
BCA Research analysts wrote that, “A healthy domestic backdrop, coupled with the Fed on hold for the year, means that investors should buy any Iran-induced equity sell-off, barring a war that closes the Strait of Hormuz,” in a daily note Tuesday.
“The domestic economy should remain in solid shape, supported by a robust labor market,” they said.
Which stocks were in focus?
Shares of Facebook Inc. FB, +0.22% were in focus after the social-media platform said it is banning videos that have been manipulated using advanced tools. Shares were up 0.2%.
Tesla Inc. shares TSLA, +3.88% jumped 3.9% as Chief Executive Elon Musk celebrated the delivery of the first vehicles made in China.
FireEye Inc. FEYE, +3.24% shares rose 3.2%, nearing their highest level in about 11 months, after an analyst upgrade. The analyst, with SunTrust Robinson Humphrey, raised his stock price target by nearly half.
Shares of Microchip Technology Inc. MCHP, +6.71% closed 6.7% higher after an analyst price target upgrade.
Micron Technology Inc. MU, +8.78% shares surged 8.8% after a Cowen upgrade.
How are other markets trading?
Oil snapped three sessions of gains to end lower Tuesday, with U.S. benchmark West Texas Intermediate crude for February delivery CLG20, -0.16% settling 57 cents lower, or 0.9%, at $62.70 a barrel.
Gold GCG20, +0.31% scored its longest streak of gains in 2 years, settling 0.4% higher at $1,574.30 an ounce, after closing out Monday at a seven-year high, according to FactSet data.
The yield on the 10-year U.S. Treasury note TMUBMUSD10Y, -0.72% rose 2.5 basis points to 2.305%, its largest two-day yield gain since Dec. 31, according to Dow Jones Market Data. Bond yields move inversely to prices.
The U.S. dollar was 0.3% higher versus a basket of its peers as measured by the ICE US Dollar index DXY, +0.10% .
In Asia overnight, the CSI 3000 000300, -1.15% closed more than 30 points, 0.8%, higher, while Japan’s Nikkei 225 NIK, -1.57% gained 371 points, ending 1.6%, higher. The Hang Seng HSI, -0.83% rose nearly 96 points, or 0.3%.
In Europe, the FTSE 100 FTSE, -0.44% closed 1.5 points lower, or less than 0.1%, while the STOXX Europe 600 SXXP, +0.05% ticked up 1 point, or 0.3%.