Plus, President Trump threatened sanctions agains Iraq, oil and gold are rising, and Bed Bath & Beyond shares jumped this morning.
Stocks fell to start Monday with the Dow dropping 147 points, or 0.5%. The S&P 500 slipped 0.4% lower, while the Nasdaq was down 0.6% at the open.
U.S. policy in the Middle East has become far more uncertain in the wake of the assassination of Iranian General Qasem Soleimani, even as the Trump administration attempts to argue that the decision to take Soleimani out would prevent future attacks on the U.S. and make the region safer. Political backlash has come quickly with Iran saying this weekend that it was ending all of its commitments to the 2015 nuclear deal and would no longer limit uranium enrichment, and Iraq’s parliament voting on Sunday to oust U.S. troops from the country. President Donald Trump responded by threatening sanctions against Iraq and said the country would have to reimburse America for a multi-billion dollar air base. Speaking to reporters on Air Force One, Trump said, “If they do ask us to leave, if we don’t do it in a very friendly basis, we will charge them sanctions like they’ve never seen before ever. It’ll make Iranian sanctions look somewhat tame. We have a very extraordinarily expensive air base that’s there. It cost billions of dollars to build. Long before my time. We’re not leaving unless they pay us back for it.”
Moody’s warned this morning that any prolonged conflict between the U.S. and Iran would have global economic repercussions. “A lasting conflict wold have wide-ranging implications through broad economic and financial shock that significantly worsen operating and financing conditions,” Moody’s senior analyst Alexander Perjessy wrote in a note to clients. “A protracted conflict would potentially have global repercussions, in particular through its effect on oil prices.” House Speaker Nancy Pelosi said in a letter to colleagues on Sunday that the House will vote on a war powers resolution this week to limit Trump’s military actions regarding Iran to reassert “Congress’s long-established oversight responsibilities by mandating that if no further Congressional action is taken, the Administration’s military hostilities with regard to Iran cease within 30 days.” In the letter, Pelosi said the Trump administration’s “provocative and disproportionate military airstrike targeting high-level Iranian military officials” has endangered U.S. “service members, diplomats and others by risking a serious escalation of tensions with Iran.” “As Members of Congress, our first responsibility is to keep the American people safe,” Pelosi wrote. “For this reason, we are concerned that the Administration took this action without the consultation of Congress and without respect for Congress’s war powers granted to it by the Constitution.”
Oil prices could jump to $80 a barrel if a full-blown conflict between the U.S. and Iran erupts as it could disrupt 2-3 million barrels a day of oil supply from the Persian Gulf. Brent crude prices are continuing to rise and are currently up 1% to $69.28. West Texas Intermediate Crude is up 0.62% this morning to $63.44. Gold prices have also surged to a six-year high as investors have piled into safe haven assets as tensions ratchet up. Gold futures for February are currently at $1,565.40 per ounce, and hit a high of $1,590.90 per ounce, marking the metal’s highest level since April 2013. “This is a bullish development, and while stretched, should lead to higher gold prices in the days/week ahead,” said Newton Advisors’ Mark Newton, adding that the yellow metal could reach a range between $1,650 and $1,700. Goldman Sachs’ head of commodities research, Jeff Currie, said in a note to clients, “We found that spikes in geopolitical tensions lead to higher gold prices when they are severe enough to cause currency debasement. This most often happens during wars or military escalations. Therefore, additional escalation in US-Iranian tensions could further boost gold prices.”
Remember the trade war? While the developments in the conflict between the U.S. and Iran have dominated headlines recently, there has been good news on the trade front with China. The Chinese trade delegation plans to come to Washington on January 15 to sign the “phase one” trade deal with President Trump. Vice Premier Liu He will be signing the deal for the Chinese. The South China Morning Post reported that the Chinese delegation had originally planned to visit the U.S. earlier in the month, but changed their plans when Trump unilaterally announced last week the signing date would be on January 15 at the White House.
Bed Bath & Beyond shares are up nearly 4% this morning after the retailer said that it has completed a sale-leaseback transaction with an affiliate of Oak Street Real Estate Capital, netting it $250 million. CEO Mark Tritton said the deal “marks the first step toward unlocking valuable capital … that can be put to work to amplify our plans to build a stronger, more efficient foundation to support revenue growth, financial stability and enhance shareholder value.” Tritton has only been in the CEO seat for a few weeks, but has been demonstrating that he’s wasting no time in putting his turnaround strategy to work.
Stocks We’re Watching
Kratos Defense (NASDAQ: KTOS): Kratos shares jumped 11% Friday as part of a broader surge in defense stocks following the news that the U.S. had killed Iranian General Qasem Saleimani in an airstrike. Kratos shares have been stuck in neutral lately as investors await word of an order from the Pentagon for Kratos’ Valkyrie wingman drone. With the odds of a conflict in the Middle East rising, the odds of lawmakers cutting military spending in an election year are low, which could be good news for Kratos’ Valkyrie.
Lamb Weston Holdings Inc (NYSE: LW): Shares of this food processing company surged more than 12% on Friday after Lamb Weston reported fiscal Q2 sales growth of 12% year-over-year to $1.02 billion. Adjusted earnings per share jumped 19% to $0.95, while analysts were expecting earnings of around $0.84 per share. “We are well-positioned with our raw potato supply to deliver our volume targets and support customers’ growth,” Lamb Weston CEO Tom Werner said on the company’s Q2 2020 earnings call. “We will opportunistically evaluate opportunities that may come our way. But our focus is to execute against our customers and the plans that they have and drive their growth. That’s it.”