Amid tensions with Iran, market still bounces back to hit new all-time highs

Market Recap Week ending 1/10/2020

Tensions between the US and Iran continued to be top of mind for investors through much of the week. However, a non-lethal, retaliatory attack by Iran coupled with de-escalation rhetoric from both sides, took some pressure off the situation and allowed US indices to move higher and hit yet another set of all-time highs.  Analyst’ upgrades in the technology and communications sectors, along with some positive corporate news, helped push the NASDAQ up 1.75% for the week.  The S&P 500 gained 0.94%, the Dow eclipsed 29,000 for the first time and tacked on 0.66%, while the Russell 2000 lagged its peers with a loss of -0.19%.  US Treasuries had slight gains for the week with the 2-year yield falling two basis points to close at 1.56% and the 10-year yield losing four basis points to close at 1.83%. Treasury prices climb as yields fall.  The bulk of the gains in Treasuries came off a weaker than expected Employment Situation Report for December.  Gold gained $7.50 to close at $1559.90 an Oz in very volatile trade.  Gold traded above $1600 an Oz immediately after Iran’s retaliatory attack.  Oil also was quite volatile, losing just over 6% or $4.04 a barrel to close the week at $58.99.  The avoidance of possible supply disruption because of an escalation between the US and Iran along with a much higher than anticipated oil inventory supply report, hit the commodity hard.   There were no changes to our models last week. 

Iran fired 12 ballistic missiles targeted at US collation forces in Iraq in response to last week’s US targeted attack on an Iranian General.  The retaliatory move was non-lethal and accompanied by a statement that Iran does not seek an escalation to war.  Later, President Trump echoed this sentiment by proposing more economic sanctions rather than more military action.  Separately, it now appears that Iranian forces shot down a Ukrainian jetliner just after takeoff, killing all 176 passengers on board.  Iran had initially denied responsibility. 

Analyst upgrades in large-cap technology and communications helped the NASDAQ hit all-time highs last week.  Alphabet (Google), Facebook, Salesforce.com, Microchip, Micron, and AMD were all beneficiaries.  Apple also had a great week after it announced the iPhone sales in China increased by 18% on a year over year basis. 

On the economic front, the much anticipated Employment Situation report came in weaker than expected.  The headline non-farm payrolls increased by 145,000 versus the consensus estimate of 160,000.  The unemployment rate came in-line at 3.5%.  Average hourly earnings disappointed with an increase of just 0.1% versus an expected 0.3%.  The average workweek also was weaker than expected.  December ISM Non- Manufacturing came in a bit better than expected at 55% versus 54.3% and was higher than the prior months reading of 53.9%.  However, the report showed a slowdown in the pace of new orders, new export orders, and employment.  November Factory orders continued to reaffirm the weakness seen in manufacturing with the November reading coming in at -0.7% versus expectations of -0.8%. 

Darren Leavitt, CFA

Portfolio Manager

& Sr. Market Analyst