Commenting on today’s trading of the S&P 500 (INDEXSP: .INX) Gorilla Trades strategist Ken Berman said: 

Even though Friday’s panic quickly subsided and stocks finished broadly higher, the mood remains nervous on the Street. The Volatility Index (VIX) hit an almost one-month high this morning, even surpassing Friday’s levels, and although the fear gauge finished the day slightly lower, it’s too early to say that the pullback is over.

The major indices bounced back following Friday’s sell-off thanks to the improving investor sentiment, and the benchmarks are once again very close to their all-time highs in the wake of the quick recovery. The Dow was up 69, or 0.2%, to 28,703, the Nasdaq gained 51, or 0.6%, to 9,071 while the S&P 500 .INX rose by 11, or 0.4%, to 3,246. Advancing issues outnumbered decliners by an almost 3-to-2 ratio on the NYSE, where volume was slightly below average.  

This morning, it seemed that stocks will add to Friday’s steep losses amid the rampant speculation regarding the consequences of the surprising airstrike, we saw a broad-based intraday rally on Wall Street. The tech sector and materials lead the way higher, while consumer goods, real estate stocks, and the defensive healthcare issues also finished in the green. The slight dip in the largest defense-related names such as Lockheed Martin (LMT, -0.15%) means that investors are starting to believe that a wider conflict might be avoided, despite the rising tensions. 

S&P 500 (INDEXSP: .INX) outlook

Most analysts agree that despite the first shock triggered by the attack against Qasem Soleimani and the severity of Iran’s loss, an outright military conflict is still unlikely in the Middle East. That said, some kind retaliation is all but certain, so we could be in for volatile swings this week and in the coming months. Due to the ties between China and the Persian state, some say that even the ‘phase two’ trade talks could be affected by the conflict, but China-related issues remained stable today, holding on to their recent gains.

Although the price of oil pulled back from its multi-month high and the price of gold also closed the day well below its early-day maximum, which represented a seven-year high, the materials sector still had a very strong day. The battered energy sector, as measured by the XLE ETF, hit its highest level since May on Friday, despite the continued demand-side pressures, and today’s better-than-expected European economic releases cold further boost energy stocks in the coming weeks, even should the U.S.- Iran tensions ease.

We will have a busy day of economic releases tomorrow, and besides the key U.S. ISM non-manufacturing PMI, Europe could once again provide the strongest catalysts for .INX. The ISM manufacturing PMI continued to deteriorate this month, but analysts expect an increase in the services measure and today’s bullish revision of the Markit services PMI could point to a positive e surprise. U.S. factory orders will come out together with the PMI and before that, the Eurozone Consumer Price Index (CPI) and retail sales will highlight the pre-market session. Stay tuned!