Stocks Tumble and Oil Rises But Markets Mostly Shrug Off Killing of Iran’s Top Military Leader

Oil prices moved higher and global stocks slipped after a U.S. airstrike killed Iran’s top military leader.

The most notable thing about the early reactions to the killing, however, was their mildness and how quickly they faded.

“I suspect that the market consensus is going to be to fade this pretty quickly. It has seen this movie before–a spark in geopolitical tension, textbook reactions in stocks, bonds, and oil, and then the markets fade back,” Mohamed El-Erian, Allianz chief economic advisor, said in an interview on CNBC Friday morning.

Investors appeared to regard the airstrike as a temporary rise in global tensions and risk rather than a prelude to an acute conflict between the U.S. and Iran.

West Texas Intermediate futures rose 4.8 percent to $64.09 in early trading. But by Friday afternoon, the price was up just around 3.0 percent. Longer-term oil contracts were virtually unmoved, suggesting that traders are not very fearful the retaliatory attacks from Iran on Middle Eastern oil infrastructure could hamper world supply. The ability of the U.S. to supply oil to the world has greatly ameliorated the world’s dependence on oil from the region.

U.S. stocks opened higher than futures had indicated in the early hours after the attack and rose off their lows as the morning stretched on. After the first hour of trading, the Dow Jones Industrial Average and the Nasdaq Composite were down just about eight-tenths of a percentage point. The S&P 500 was down by about seven-tenths.

To put that in context, the major stock indexes have done little more than reverse the prior day’s gains. The major indexes are coming off one of the strongest years since the recession, so it is the resiliency of the gains in light of the heightened risk evidence Friday that is remarkable.

Predictably, defense contractors like Northrop Grumman and Lockheed Martin moved sharply higher, with Northrop jumping 4.45 percent and Lockheed climbing 3.6 percent. Airlines, which are thought to be exposed to the risk of higher fuel prices and have struggled because of the grounding of Boeing’s 737 Max, declined.  American Airlines was down around 5 percent.

Treasury yields moved lower but not dramatically, meaning investors were not flooding into safe assets. The yield on the 10-year sank by 9  basis points, or hundredths of a percentage point, to 1.793 percent. Treasury yields move down as prices of bonds rise.