(Bloomberg) – US stock index futures fell in Asia after a US drone in Baghdad killed a leading Iranian military commander last week, dampening investors' appetite for riskier assets.
The S&P 500 index futures contracts expiring in March fell 0.4% to 8:26 a.m. in Tokyo after the attack caused the Iraqi parliament to vote to expel US troops from the country , Iran said it would no longer adhere to uranium enrichment limits. Futures on the Nasdaq 100 index declined 0.5%, while contracts on the Dow Jones Industrial Average fell 0.5%.
"Risk appetite, which continued in the new year, was interrupted last week by the return of geopolitical tensions, which intensified over the weekend from threats exchanged between the United States and Iran," said IG IG market strategist Jingyi Pan Asia Pte. "A short-term weakness in the equity market could also occur as the market evaluates the good performance we have seen so far in terms of trading hopes."
Geopolitical tensions were practically the only thing that could keep US stocks from an upward trend that started five months ago. The S & P 500 had its best year in six years and gained almost 30% in 2019. Its biggest monthly decline last year was in May when the US-China trade war intensified and the Trump administration Huawei Technologies Co. introduced a blacklist.
Markets may currently be particularly vulnerable to shocks as the S&P 500 trades close to its bull market high with nearly 22x gains. A JPMorgan Asset Management valuation model showed that stocks are overvalued compared to historical averages in terms of earnings, long-term earnings, book value and cash flow.
"We have to remember that the market is going through a very strong rally, so it's natural for buyers to think a little," said Matt Maley, equity strategist at Miller Tabak & Co.
At the same time, geopolitical events like last week's attacks, according to a Suntrust tip on Sunday, have not caused permanent market disruption. The company investigated 12 comparable cases and found that the shares were only three times lower 12 months later, each coinciding with a recession.
"The drop in futures so far is in Friday's trading range," said Jim Paulsen, chief investment strategist for the Leuthold Group, via email. "Fundamentals are still higher and this should lead to" buyers staying in the minus "if / when tensions in Iran lead to a sell-off."
– With the support of Vildana Hajric.
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