Rising Middle East Tensions Lead To Pullback On Wall Street

(RTTNews) - Stocks saw notable weakness during trading on Friday, giving back some ground following the rally seen over the course of the previous session. With the drop, the major averages pulled back off yesterday's record closing highs.

The major averages regained some ground after gapping open sharply lower but remained firmly negative. The Dow tumbled 233.92 points or 0.8 percent to 28,634.88, the Nasdaq slumped 71.42 points or 0.8 percent to 9,020.77 and the S&P 500 fell 23.00 points or 0.7 percent to 3,234.85.

Meanwhile, the major averages showed little change for the week, which spanned two separate years. While the Nasdaq crept up by 0.2 percent, the Dow edged down by less than a tenth of a percent and the S&P 500 dipped by 0.2 percent.

The initial sell-off on Wall Street came amid rising geopolitical tensions following news a U.S. airstrike killed Iranian military leader Qassem Soleimani.

The U.S. Department of Defense said in a statement that it had killed the head of the Islamic Revolutionary Guard's elite Quds Forces in an airstrike on the Baghdad International Airport in Iraq.

The Pentagon claims Soleimani was behind the recent attacks on the U.S. embassy in Baghdad and said the "strike was aimed at deterring future Iranian attack plans."

Iranian leader Ayatollah Ali Khamenei said there would be "revenge" for Soleimani's death, while President Donald Trump cryptically tweeted, "Iran never won a war, but never lost a negotiation!"

Trump later claimed that he does not want to start a war with Iran but said he is "ready and prepared to take whatever action is necessary" to protect American lives.

Adding to the negative sentiment on Wall Street, the Institute for Supply Management released a report showing U.S. manufacturing activity unexpectedly contracted at a faster rate in the month of December.

The ISM said its purchasing managers index slid to 47.2 in December from 48.1 in November, with a reading below 50 indicating a contraction in manufacturing activity.

The modest decrease came as a surprise to economists, who had expected the manufacturing index to inch up to 49.0.

With the unexpected drop, the index pointed to the fastest rate of contraction in manufacturing activity since June of 2009.

Sector News

Computer hardware stocks showed a sharp pullback after turning in some of the market's best performances on Thursday, with the NYSE Arca Computer Hardware Index plunging by 2 percent after ending the previous session at a record closing high.

Substantial weakness also emerged among chemical stocks, as reflected by the 1.9 percent slump by the S&P Chemical Sector Index. The sector saw further downside after bucking the uptrend on Thursday.

Semiconductor, financial and steel stocks also saw considerable weakness on the day, moving lower along with most of the other major sectors.

Meanwhile, energy stocks bucked the downtrend amid a sharp increase by the price of crude oil. Crude for February delivery jumped $1.87 to $63.05 a barrel amid the rising Middle East tensions and data showing a steep drop in crude oil inventories.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance during trading on Friday. Hong Kong's Hang Seng Index fell by 0.3 percent, while Australia's S&P/ASX 200 Index climbed by 0.6 percent.

The major European markets also finished the day mixed. While the German DAX Index tumbled by 1.3 percent, the French CAC 40 Index closed just above the unchanged line and the U.K.'s FTSE 100 Index edged up by 0.2 percent.

In the bond market, treasuries moved significantly higher due to their appeal as a safe haven. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, tumbled by 9.4 basis points to 1.788 percent.

Looking Ahead

Developments on the geopolitical front may continue to impact trading next week, although traders are also likely to keep a close eye on the Labor Department's monthly jobs report.

Reports on the U.S. trade deficit, service sector activity, and factory orders may also attract some attention next week.