U.S. Stocks Rose Last Week After Refocusing on Fundamentals

The risk aversion that prevailed in the wake of the U.S. drone strike in Iraq dissipated quickly last week, replaced by a focus on fundamentals that resulted in stocks resuming their ascent. The S&P 500® Index added 0.9 percent last week, more than reversing its 0.2 percent loss from the prior week. Brent crude oil retreated as well, falling $3.62 to $64.98 a barrel, where it was last in mid-December. The VIX index fell, while gold came off its high, but still managed a small gain for the week, as did the ten-year note yield. It closed the week at 1.82 percent, up from 1.79 the prior week, but down from its Wednesday high of 1.87. Whether we have seen the last of the U.S.-Iran confrontation for now remains to be seen. 

Investors Need to Not Overreact as Markets Sort Out Latest Geopolitical Crisis

U.S. equities began the new year exactly where they left off last year, by establishing yet another record high of 3,257.85 in the S&P 500® Index on the first day of trading. But that positive market sentiment was suddenly halted on day two by news of the U.S. drone strike in Iraq. The immediate reaction in markets came as expected. Stocks fell, while oil, bonds, gold, and volatility all rose. Overall, the reaction in stocks was relatively contained, as investors attempted to assess the likelihood and extent of further escalation between the U.S. and Iran. Having said that, stock markets in the Middle East were down sharply in Sunday trading, with Egypt down 4.7 percent, Kuwait down 4.1, UAE down 3.1, and Saudi Arabia, Qatar, and Bahrain all down in excess of 2 percent, according to Bloomberg. 

Markets Received an Abundance of News Last Week, Although Investors Continue to Focus on Fundamentals

The U.S. House of Representatives passed the US-Mexico-Canada trade agreement, Congress and the president agreed on a $1.4 trillion budget deal to fund the government through fiscal 2020, including significant changes to retirement planning and saving, the House of Representatives voted to impeach President Trump, and the U.K. parliament passed Boris Johnson’s Brexit deal.