U.S. Killing of Soleimani Shakes Mideast Markets as Fears of War Grow

The Tel Aviv Stock Exchange only opened half a point down on Sunday

Traders work on the floor of the New York Stock Exchange (NYSE) on January 03, 2020 in New York City
Spencer Platt/Getty Images/AFP

Major stock markets in the Middle East are trading down on fears of a conflict between Iran and the U.S. after an American drone strike killed Iranian Gen. Qassem Soleimani.

The Boursa Kuwait closed down 4%. The Dubai Financial Market closed down just over 3%. Riyadh’s Tadawul was down over 2% as trading continued. The Abu Dhabi Securities Exchange fell 1.42%.

The Tel Aviv Stock Exchange only opened half a point down on Sunday.

Egypt's stock exchange also fell 4%.

Meanwhile, oil prices continued to rise. Brent crude traded up 3.5% to $68.60 a barrel.

The U.S. killed Soleimani on Friday. Early Sunday, as Iran threatened “harsh retaliation,” President Donald Trump tweeted the U.S. was prepared to strike 52 sites in the Islamic Republic if any Americans are harmed.

U.S. slide going into the weekend

Wall Street's major indexes fell from record highs on Friday after a U.S. air strike in Iraq ratcheted up tensions in the Middle East and a bigger-than-expected contraction in the U.S. manufacturing sector raised concerns of slowing economic growth.

Friday's decline put the benchmark S&P 500 in the red for the week, snapping a five-week winning streak for the index.

Demand for safe-haven assets soared as Iran vowed revenge for the killing of Qassem Soleimani, head of its elite Quds Force, in an air strike authorized by U.S. President Donald Trump.

In a further blow to U.S. market sentiment, data from the Institute for Supply Management showed that U.S. factory activity contracted in December by the most in more than a decade.

"There was a reinforcement of weak manufacturing activity and then you had the geopolitical spark," said Michael Antonelli, market strategist at Robert W. Baird in Milwaukee. "That's on top of the sentiment that the market has been overbought."

S&P 500 bank stocks dropped 1.6% as the news sent benchmark U.S. bond yields to their lowest since Dec. 12.

Shares of airlines also tumbled as oil prices jumped about 3%. American Airlines Group Inc shares dropped 5.0%, while shares of United Airlines Holdings Inc fell 2.1%.

Among the S&P 500's 11 major sectors, only real estate and utilities - both considered defensive plays - ended higher.

In a sign of investor jitters, U.S. stocks extended their fall following a false report of an attack on a U.S. military base in Iraq.