Mideast tensions pushed Nymex July Crude Oil (NYM:CLM14) to $4.25 a barrel, or up 4.1%, to a Thursday, June 12 high of 107.67 as tensions grew across the Middle East.
By Friday, with news that the ISIS insurgents threats to attack Baghdad were being met with renewed vigor by the Iraqi government, supported by both Iran and the US, July crude ended the week at 106.56.
Analysts point to promising factors, including Pres. Obama’s making US support conditioned on reforms in the way the Al-Maliki government treats the Sunni minority, as well as a statement by an anti-al Qaeda Sunni group supporting the Shia-led government. While tensions remain high, Baghdad appears safe. This nevertheless shows how vulnerable global markets are to headlines.
With stocks up nearly 190% since the October 2009 lows and a three-week charge to the upside that included 10 new highs for the Dow(DJI:^DJI) and 19 new highs for the S&P 500 (SNP:^GSPC), stocks came under selling pressure as the terrorist group ISIS took over large areas of Iraq.
After weeks of quiet, low-volume trade the markets came to life, sending crude oil to its largest gain of the year and stocks to their first weekly loss in a month.
By Friday’s close the the Dow Jones industrial Average was down -0.90% for the week after marking a new record high on Tuesday. The S&P closed down .070% for the week. Year to-date the Dow is up +1.2% and the S&P is up 4.8%. The Nasdaq Composite Index (^IXIC) advanced 15 points, or 0.3%, to 4312 and closed down 0.33% on the week.
Call to Arms
While the US is mulling over what it will do to help the Iraqi government, Grand Ayatollah Ali Sistani, Iraq’s most influential Shiite cleric, issued a rare call to arms to defend against the Sunni insurgent group ISIS.
Ali Sistani, who has millions of followers worldwide and largely stayed out of the US-Iraq conflicts, called for thousands of young men to fight the Islamic State of Iraq and al-Sham and its push toward Baghdad.
TV stations showed young men lining up behind trucks outside military bases. Iran has sent 2,000 elite Qud forces and another 2000 soldiers to Diyala and Wasat provinces.
Tehran and Washington are working on a tentative alliance. Iran has recently said it will not return to the days of the sanctions regime, meaning that it would not attempt a nuclear program without international supervision, easing pressure on current negotiations. Iran has also said it would not oppose US military support to the beleaguered Maliki.
Last week’s short-term drop was the stock market’s response to the short-term (and possibly short-lived) attacks by ISIS on poorly-defended places like Mosul.
But long-term, analysts of both security and finance are looking at the stabilizing benefits of US-Iran cooperation, particularly with regard to Israel, and at the stabilizing effect of increased US production of oil and natural gas, not to mention solar energy, which will create more US jobs than the coal industry.
No one is calling this the long-anticipated correction or saying that the markets no longer have reason to continue their somewhat puzzling, but undeniably relentless push higher. We expect a return to the upside next week.