The new year is still, well, new, but President Trump is showing he means business when it comes to dealing with Iran. Late Thursday, a U.S. airstrike killed General Qassem Soleimani, the head of Iran’s elite Quds and one of the most powerful figures in that country.
That move brought criticism from Democrats claiming a military operation of that magnitude needs congressional authorization and promises of “crushing revenge” from Iran. As a result, stocks were crimped to close the week.
- The S&P 500 retreated 0.71%
- The Dow Jones Industrial Average lost 0.81%
- The Nasdaq Composite declined by 079%
- Confirming that geopolitical tensions pressured stocks today, Pfizer (NYSE:PFE) was the only Dow component trading to the upside late in Friday’s session.
The Pentagon said the strike that killed Soleimani was aimed at preventing further loss of American life and some Republican senators took to Twitter last night to say the general had American blood on his hands.
“The Defense Department blamed Soleimani for the deaths of hundreds of Americans, and said he was behind recent attacks on coalition bases in Iraq, including one on December 27 that killed an American defense contractor,” reports CBS News.
Speculation is swirling that Trump pushed to have Soleimani vanquished based on intelligence that the Iranian general was planning an attack on Americans or American assets.
“General Qassem Soleimani has killed or badly wounded thousands of Americans over an extended period of time, and was plotting to kill many more … but got caught!,” said Trump on Twitter earlier today.
Unpleasant Surprises
One of the more predictable market reactions to geopolitical tensions in the Middle East is for oil prices to rally, which crude did today. Typically, oil equities will go along for that ride, but that wasn’t the case today as Dow components Exxon Mobil Corporation (NYSE:XOM) and Chevron (NYSE:CVX) both traded lower.
In the case of Exxon, the largest domestic energy company, that stock was lower by about 1% even though the company said it’s going to realize a gain of $3.6 billion from the sale of some Nordic assets.
“The Norway deal in September, a part of Exxon’s earlier plan to divest about $15 billion in nonstrategic assets by 2021, included ownership interests in over 20 producing fields with a combined production of about 150,000 barrels of oil equivalent per day in 2019,” according to Reuters.
Surprise Part II
Another standard equity market response to the specter of military conflict is for defense stocks to rally. While the likes of Boeing (NYSE:BA) and United Technologies (NYSE:UTX) were steadier earlier in the session, both Dow Jones defense names were slightly lower late in the day.
Be Like Buffett
Warren Buffett’s Berkshire Hathaway (NYSE:BRK.A) has stakes in several Dow stocks with one of his favorites being banking giant JPMorgan Chase (NYSE:JPM). Berkshire owns 59.5 million JPM shares, 2% of the total outstanding.
Based on Buffett’s assumptions about where JPM should trade relative to its book value, the stock, which was hot last year, is currently undervalued.
“JPMorgan’s tangible book value at the end of the third quarter of 2019 was $60 a share, implying that it could trade to $180 based on Buffett’s math. At its current price, the stock trades for nearly 14 times projected 2019 earnings and yields 2.6%,” reports Barron’s.
More Good News For Apple
Apple (NASDAQ:AAPL) took a modest breather today and the stock may be due for a bit more of that given its recently torrid pace, but Wall Street remains enthusiastic about the stock for 2020.
Not one, but two sell-side analysts are boosting price targets on the iPhone maker’s stock. RBC analyst Robert Mueller reiterated an “outperform” rating on Apple while increasing his price target to $330, from $295.
Bank of America’s Wamsi Mohan reiterated a “buy” rating on Apple while lifting his price forecast on Apple shares to $330 from $290.
Weak Data
Broadly speaking, the U.S. economy is on firm ground, but that sentiment doesn’t extend to manufacturers, which are struggling.
The December reading of the Institute of Supply Management’s manufacturing purchasing managers’ index checked in at 47.2, well below economists’ expectation of 49. Anything below 50 is seen as negative and today’s report explains by Dow components 3M (NYSE:MMM) and Caterpillar (NYSE:CAT) were two of the index’s worst-performing names today.
Bottom Line on the Dow Jones Today
To put things delicately, today was a tricky one for riskier assets, oil being the exception. Geopolitical tensions coupled with the aforementioned weak manufacturing data are tough headwinds to overcome on an intraday basis.
However, if cooler heads are able to prevail regarding the Iran situation, admittedly a big “if,” the recent weakness in the dollar should continue. The dollar was drubbed last month and that’s good news for domestic exporters, plenty of which reside in the Dow Jones Industrial Average.
As of this writing, Todd Shriber did not own any of the aforementioned securities.