BAGHDAD, Iran – January 6 is the first official trading day of the year. It will be business as usual for stock markets, and traders would have to contend with the events of the previous week. While the markets rallied at the start of the year, the ongoing tensions between the US and Iran could impact the week ahead.
An Iranian general being killed by a US air strike could drive how the market will perform in the coming week. The attack has already disrupted the market’s New Year rally and pulled down many major benchmarks.
It also boosted oil prices as investors worried about Iran’s reaction dropped equities and turned to safe-haven assets like Treasury and gold. The conflict is unlikely to be resolved quickly, unlike the attack on a Saudi oil refinery last September. This means the impact on oil prices and the market will linger.
Brian Levitt, a market strategist from Invesco, noted that short-term market volatility usually follows geopolitical issues. He said investors anticipate that uncertainty as stock markets wait for Iran’s expected retribution and upheavals in the world oil markets.
However, analysts are also saying that the potential effect of oil in economies won’t be as devastating as it was before. Many countries no longer rely heavily on fossil fuels to power their economies. It would also take a constant and substantial increase in oil prices before leaders will become concerned about economic recovery.
December was a good year for many indices. Wall Street and China’s benchmarks rallied and even hit new records on January 2. It was a different story on Friday though as shares in the Dow Jones, the Nasdaq, and the S&P 500 all went down.
While no one can give a definitive answer as to how the market will do next week, analysts aren’t overly worried. The drop in shares last Friday didn’t have a big impact on Thursday’s gains. And even if Iran does retaliate, there’s still room for a pullback.
It’s not just Wall Street that’s on relatively stable coin. The MSCI World Market Index rose 12% since October, so there’s also room for corrections regardless of what happens in the Middle East.
Brexit and the US-China trade deal could also be a big factor in the coming week. The British parliament is set to reconvene on January 7 and will discuss how they will get Brexit done. Meanwhile, the impending signing of Beijing and Washington’s Phase One deal could help bolster Asian markets.