Why the killing of Iranian General Qassem Soleimani should scare investors

WhenBrian SozziEditor-at-Large,Yahoo Finance•January 3, 2020

a market melt-up is built on pure hope rather than fundamentals — as was the case for stocks closing out 2019 — one event that dents the very driver of said hope could dramatically shift risk sentiment in equities for an extended period.

Investors are about to be reminded of that often painful lesson.

Dow Jones Industrial Average futures tanked more than 350 points on Friday. Gold prices spiked to a four-month high, and oil prices sniffed $70 a barrel following the U.S.-led killing of Iran’s top commander. General Qassem Soleimani was killed in a U.S. drone strike in Baghdad, the Pentagon confirmed Thursday night. Soleimani, a major player in Middle East politics, led a special forces unit of Iran’s Revolutionary Guards. He was reportedly involved in recent U.S. embassy attacks in Iraq and been plotting other attacks against U.S. interests in the region.

Experts believe Soleimani’s killing will ratchet up already terrible U.S. relations with Iran, in large part fueled by tough American sanctions on the country. A response by Iran to Soleimani’s death is seen as inevitable — what is unclear is if any action would hurl the country into a military conflict with the U.S. and its allies that would harm global growth.

“The Iranian actions will stop short of what we would consider war. Overall, the chance of war is 40%,” said Eurasia Group strategist Henry Rome. “We divide war into two sub-scenarios: a limited conflict (intense fighting for a week and at least 100 dead) and a major conflict (region-wide conflict that would last several months and involve sustained attacks on regional oil infrastructure). Under the 40% war scenario, a limited conflict has a 70% probability and a major conflict a 30% probability.”