Thursday, January 9, 2020
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As seen on Wednesday
On Monday, we noted that sell-offs related to geopolitical tensions tend to be short lived.
On Wednesday, stocks hit record highs.
Markets rallied after President Donald Trump said Tehran “appears to be standing down,” and suggested an armed response from the U.S. to Tuesday’s actions in Iraq isn’t imminent.
Trump also announced additional economic sanctions against Iran on Wednesday.
The market’s reaction to Trump’s comments — taken at face value — indicates that investors aren’t worried about Middle East tensions. Which isn’t quite right. There are always uncertainties facing investors and U.S.-Iran relations are now a big part of that calculus when just a few weeks ago this risk was pretty well off the radar for most investors.
But the market’s rally on Wednesday does show how political and geopolitical considerations fit in to any market moment. Which is to say that politics can often cause short-term volatility or exacerbate existing trends but will not create new, overarching market narratives on their own.
In the 1970s, Watergate occurred during a down market because the economy and stock market was enduring one of its low points in post-World War II history.
In the late 1990s, the Clinton impeachment coincided with a rally in stocks because the market was bouncing back from the Russian financial crisis and preparing for the last blow-off rally ahead of the tech bubble bursting two years later.
In 2019, the stock market rallied during Trump’s impeachment because the Fed was cutting rates and the global economy appeared poised for a rebound in the year ahead. And this, of course, is the market moment in which we remain.
Investors are betting on better earnings, better growth, and easy monetary policy in the year ahead. They’ve been placing bets in this direction for months.
Middle East dustups will always drive news headlines and can oftentimes hurt markets in the short-run. The “pain” felt in the S&P 500 as a result of the 2020 U.S.-Iran conflict has so far been less than 1%. It’s almost like it didn’t happen at all.
What to watch today
8:30 a.m. ET: Initial Jobless Claims, week ended Jan. 4 (220,000 expected, 222,000 prior); Continuing Claims, week ended Dec. 28 (1.719 million expected, 1.728 million prior)
9:45 a.m. ET: Bloomberg Consumer Comfort, week ended Jan. 5 (63.9 prior)
4:10 p.m. ET: KB Home (KBH) is expected to report adjusted earnings of $1.30 per share on $1.60 billion in revenue.
Downbeat Mark Carney speech sends pound falling [Yahoo Finance UK]