Dow Futures Rise, Nasdaq Slips And Crude Gains Amid Ongoing Unrest In Iran

Dow futures edged higher on Friday morning as defense and energy stocks gained traction amid growing concerns over geopolitical instability in Iran. Nasdaq futures slipped slightly as investors factored in potential inflationary risks from Middle East tensions. Crude oil prices climbed on fears of supply disruptions, with WTI futures rising above $58 a barrel. The market remains cautious ahead of Friday's nonfarm payrolls report, a key economic indicator for the year.

Defense stocks rebounded sharply following President Trump's proposal for a $1.5 trillion military budget for fiscal year 2027. The move comes after Trump issued executive orders threatening to block dividends and stock buybacks for underperforming contractors. Trump stated the budget would allow the U.S. to build a 'Dream Military' to ensure national security.

Lockheed Martin, General Dynamics, and other defense firms saw significant premarket gains. Analysts at Jefferies noted that the move could introduce more government intervention, creating uncertainty for investors. The defense sector had previously dropped sharply on Wednesday after Trump's executive actions.

Oil prices rose for a second day as concerns mounted over potential supply disruptions in Iran and Venezuela. West Texas Intermediate (WTI) crude climbed to $58.13 per barrel, while Brent futures rose to $62.43. The market is reacting to U.S. President Trump's claim of control over Venezuela's oil sector and escalating unrest in Iran.

Why Did This Happen?

The market's reaction to Trump's military budget proposal reflects a broader trend of volatility linked to his policy announcements. Trump's demand for a $1.5 trillion defense budget marks a substantial increase from the 2026 approved spending. Analysts said the proposal could complicate market expectations, especially for defense firms facing production pressures.

Trump also highlighted potential funding sources for the budget, including tariff revenue and debt reduction. However, investors remain focused on the short-term uncertainty introduced by his policy shifts. This has led to a surge in defense stocks and a cautious stance in the broader market.

How Did Markets React?

The divergence in market performance highlights the shift in investor sentiment toward energy and defense sectors. The Dow Jones Industrial Average was up slightly in futures trading, while the Nasdaq 100 faced downward pressure. This trend aligns with broader sector rotation patterns seen at the start of 2026.

Small-cap stocks and energy names outperformed, with the Russell 2000 rising nearly 1% on Thursday. Energy stocks gained as geopolitical tensions and Trump's policy shifts created a more bullish outlook for the sector. In contrast, tech stocks, especially those in the Magnificent 7, declined in response to shifting investor priorities.

The SPDR S&P 500 ETF Trust and Invesco QQQ Trust ETF both closed lower on Thursday, signaling a broader market shift away from large-cap tech toward more defensive and cyclical sectors. This shift is expected to continue as the market awaits key economic data and earnings reports.

What Are Analysts Watching Next?

Analysts are closely monitoring the outcome of Trump's Venezuela strategy and its impact on oil markets. The U.S. aims to control Venezuela's oil sector following the capture of President Nicolas Maduro. This could affect global crude prices and supply dynamics.

The nonfarm payrolls report for December is also a key focus for investors. The report will provide the first major economic data point after the longest U.S. government shutdown in history. Weak job openings and hiring data have already raised concerns about labor market fundamentals.

In the equity market, Goldman Sachs highlighted several stocks with strong potential for outperformance in the upcoming earnings season. Nasdaq, UnitedHealth Group, and Cognex are among the names analysts expect to outperform estimates. These stocks are seen as benefiting from industry growth and operational improvements.

Investors are also watching how geopolitical tensions in Iran and Venezuela evolve. The potential for military action or further supply disruptions could lead to additional volatility in energy and broader markets. Analysts at Haitong Futures said the market may see a limited and hard-to-sustain rebound unless risks escalate further.

The outcome of Trump's proposed defense budget and its implementation will also be a key focus. While the budget aims to boost military readiness, its impact on corporate profitability and investor sentiment remains uncertain. Market strategists are advising investors to maintain a balanced approach, factoring in both short-term volatility and long-term sector trends.

Goldman Sachs noted that clients are the most bearish on oil in 10 years. This suggests that while current price movements are driven by geopolitical risks, the long-term outlook remains cautious due to existing oversupply concerns.

Bitcoin and other cryptocurrencies remain under regulatory scrutiny. Recent reports suggest that the Iranian military is attempting to liquidate assets for crypto to bypass sanctions. While this validates crypto's utility, it also raises regulatory concerns and has kept prices below $100,000.

Precious metals saw a slight technical pullback after hitting record highs. Spot gold traded near $4,460, while silver dipped to $76.53. Analysts said the market remains near key support and resistance levels, with potential for further volatility depending on geopolitical developments.

The market is entering a period of high uncertainty, with multiple variables influencing asset prices. Investors are advised to monitor key economic data, geopolitical developments, and sector-specific news as they make investment decisions in 2026.