Markets Recover After Iranian Retaliation Subsides

The Dow fell overnight after Iran launched an attack on American troops based in Iraq. 

Stocks opened flat on Wednesday, regaining losses after Iran fired missiles at U.S. troops stationed in Iraq. Investors have been bracing themselves for this type of fallout ever since last week when a U.S. airstrike killed a top Iranian official. 

Iran’s retaliation sent the U.S. stock markets tumbling overnight, though the markets stabilized on Wednesday. The Dow Jones fell 400 points overnight but rose seven points by morning. 

Details on the Iranian attacks

On Wednesday, Iran attacked two bases in Iraq that housed American troops. The attack is retaliation for the killing of Gen. Qasem Soleimani, a top Iranian commander. 

In total, Iran fired 22 missiles at the military bases where American troops were stationed. No deaths or injuries were reported following the attacks, and the attacks didn’t target any oil infrastructure.

Following the attacks, President Trump met with his top national security advisors to discuss a possible response. In the past, he has vowed to take a hard line against any Iranian attacks on American targets. But Trump’s Twitter response was more upbeat than many analysts expected.

A few hours after the attacks, he tweeted, “All is well! Missiles launched from Iran at two military bases located in Iraq. Assessment of casualties & damages taking place now. So far, so good! We have the most powerful and well equipped military anywhere in the world, by far! I will be making a statement tomorrow morning.”

Iran’s foreign minister, Mohammad Javad Zarif, seemed ready to de-escalate the situation as well. Following the attacks, he tweeted that “Iran took & concluded proportionate measures in self-defense.”

How should investors respond?

On Tuesday, investors were unnerved by the reports of the Iranian attack. But the muted response from President Trump, the Pentagon, and Iran’s foreign minister went a long way to calm their nerves. 

Historically, conflicts between Iran and the U.S. have never led to a long term market downturn. Data from Barclays showed that the S&P 500 gains an average of almost 3% in the months following a conflict between the two countries. 

Plus, positive labor market data came out, which helped qualm fears over a possible economic slowdown. ADP and Moody’s Analytics found that the private sector added 202,000 new jobs in December, beating expectations of 150,000 added jobs.