New year, new highs, new threats

01/06/20
  • Stocks stumble, oil and gold soar after US airstrike
  • Tech starts year strong, but manufacturing hits a 10-year low
  • This week: First jobs report of new decade on Friday

Geopolitics took center stage at the outset of the new year, as a US airstrike in Baghdad that killed a top Iranian general tripped up markets on Friday, snapping a five-week winning streak for US stocks.

After starting 2020 by setting a record high on Thursday, the SPX retreated on Friday after news of the airstrike broke and Iran promised “harsh retaliation” for the killing of Gen. Qassem Soleimani, who the US Defense Department accused of  “actively developing plans to attack American diplomats and service members” in the Middle East:1

Chart 1: S&P 500 (SPX), 11/27/19–1/3/20. S&P 500 (SPX) price chart. Rally and retreat.

Source: Power E*TRADE


In addition to sending crude oil prices to their highest level in more than a year, the news also lit a fire under “safe-haven” markets such as gold, the US dollar, and US treasuries.

But what initially looked like an exceptionally ugly day—stock index futures were down more than 1.5% in the pre-market on Friday—turned out to be fairly run-of-the mill by the close: The SPX rebounded to end Friday down 0.7%, and lost less than 0.2% for the week. The market also digested the worst ISM manufacturing report since June 2009 without much more than a hiccup.

And thanks to its monster gain (+1.6%) on Thursday, the Nasdaq 100 (NDX) bagged its fourth-straight up week despite Friday’s loss:

US stock index performance table for week ending 1/3/20. S&P 500 (SPX), Nasdaq 100 (NDX), Russell 2000 (RUT), Dow Jones Industrial Average (DJIA).

Source: Power E*TRADE


Sector roundup: The strongest S&P 500 sectors last week were industrials (+1.1%), information technology (+0.5%), and energy (+0.4%). The weakest sectors were materials (-2.7%), consumer staples (-1.1%), and health care (-0.9%). 

Power moves: Canopy Growth (CGC) jumped 12% to $21.09 on Tuesday, while Core Laboratories (CLB) fell 21% to $37.67 on Wednesday. Honorable mention: The three stocks trading above $10/share with the biggest percentage gains on the first trading day of 2020 were Chinese tech companies Baidu (BIDU, +9.5%), Weibo (WB, +10%), and Joyy (YY, +11.5%).

Futures action: Fears of Middle East instability unleashed by Friday’s airstrike pushed February WTI crude oil (CLG0) briefly above $64/barrel—its highest level in more than year—before the market settled around $63. February gold (GCG0) surged to its highest level ($1,554/ounce) since early September, capping its biggest two-week gain (+$72) since August. 

Word on the Street

Overnight events in Iraq are certainly a question mark, and oil prices are up a little bit, but I think we’ve got a pretty good, robust, resilient economy.

Chicago Fed President Charles Evans, from a Bloomberg Television interview.2

Coming this week

Let the numbers begin—the first full week of 2020 closes out with Friday’s jobs report:

●Monday: Markit services PMI

●Tuesday: Trade deficit, ISM non-manufacturing index, Factory orders

●Wednesday: ADP employment, Consumer credit

●Friday: Employment Report, Wholesale inventories

This week’s earnings include:   

●Monday: Cal-Maine Foods (CALM), Commercial Metals (CMC)

●Tuesday: AngioDynamics Inc (ANGO)

●Wednesday: Walgreens Boots Alliance (WBA), Bed Bath & Beyond (BBBY), Constellation Brands (STZ), Lennar (LEN)

●Thursday: WD-40 (WDFC), Acuity Brands (AYI), KB Home (KBH)

Go to the E*TRADE market calendar (login required) for an up-to-date earnings schedule and a complete list of splits, dividends, IPOs, and economic reports. The Active Trader Commentary also lists earnings announcements, IPOs and economic report times each morning.

Market Mover Update. One industry that bucked Friday’s downturn was aerospace and defense, including Aerojet Rocketdyne (AJRD), which tacked another 4% onto its recent rebound (see “Bulls in space”).  

 

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1 Chicago Tribune. ‘The game has changed’: Elite Iranian general slain in U.S. airstrike at Baghdad airport; Islamic republic vows ‘harsh retaliation.’ 1/3/20.

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