U.S.-Iran Relations Flare After Soleimani Killing — Here’s How Markets Are Reacting

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President Trump ordered the U.S. military to kill top Iranian general Qassem Soleimani, further cementing poor relations between the U.S. and Iran. 

“At the direction of the president, the U.S. military has taken decisive defensive action to protect U.S. personnel abroad by killing Qassem Soleimani," the Pentagon said in a statement, adding the general was "actively developing plans to attack American diplomats and service members in Iraq and throughout the region."

Friday quickly became a risk-off day in the markets.

The S&P 500 fell more than 1%, with the other two major U.S. stock indexes also down considerably.

Crude oil rose 4% on the perception that the supply of oil will soon be constricted. Crude oil has been surging of late, up almost 21% for the past three months as demand has grown. “Demand growth continued to accelerate in November, rising 1.2 million barrels per day with growth in all countries except Japan,” wrote Morgan Stanley commodity and oil analysts in a note Friday morning.

Investors also moved into safety, sending the 10-year treasury yield down to 1.82%.

As oil rose, so did oil stocks. Exxon Mobil (XOM) - Get Report shares rose 1%. Chevron (CVX) - Get Report rose 0.8%. BP Oil rose 0.92%.

Airline stocks tumbled on rising fuel costs. American Airlines (AAL) - Get Report fell 2.7%. Delta Airlines (DAL) - Get Report fell 2.3%. Southwest Airlines (LUV) - Get Report fell 2.1%.

But the market moves Friday may be more reactionary than anything else. "Geopolitical events by their nature are unpredictable, but previous periods of increased tensions suggest that the impact on wider markets tends to be short-lived, with more lasting effects confined to local markets and assets that are directly impacted by the tensions," wrote UBS Chief Investment Officer of global Wealth Management, Mark Haefele.  

Haefele added, "don't expect a sustained oil price rally," as he noted that there wouldn't yet be a disruption to oil supply chains and that OPEC and Russia have high levels of spare production capacity. "We still expect an oversupplied oil market in 2020."