While U.S. manufacturing has fallen into its deepest hole in a decade, the all-important services sector keeps chugging along.

What's happening: The Institute for Supply Management's gauge of the U.S. services sector yesterday produced a reading solidly in expansionary territory and above expectations. That was a far cry from the company's manufacturing index, which last week hit its weakest level since June 2009.

• The gap between the two indexes in December was the largest since November 2015 and the third largest differential in a decade, ISM data show.

Why it matters: The manufacturing industry is typically thought of as a leading economic indicator, and a sustained downturn in the sector has historically presaged turmoil and even recession.

• However, that does not look to be the case right now, ISM CEO Tom Derry tells Axios.

What they're saying: "If we were having this conversation in 1965, it would’ve been a much more serious concern," Derry says of the low manufacturing numbers.

• The U.S. manufacturing industry has been hurt by the strong dollar and global consumer demand that has been weakened significantly by the trade war and tariffs, he adds.

"The services sector is a little more impervious to those factors," Derry says.

• For example, demand for health care, financial services and higher education is not as dictated by price.
• And, while the trade war has led to sustained weakness in countries as diverse as Germany, Lebanon and the Czech Republic, the U.S. derives little of its GDP from selling goods overseas.

State of play: Manufacturing represents just about 11% of the U.S. economy, while the services sector has become the dominant means of employment and earnings for the vast majority of Americans.

• The U.S. has been able to see sustained job gains and wage increases even as sectors like manufacturing, mining, transportation and trade have suffered.

Between the lines: The Fed's three rate cuts and bond buying in 2019 also have played a role in allowing the services sector to continue its strong performance, largely unabated by manufacturing's slowdown, Julia Coronado, president of MacroPolicy Perspectives, tells me.

• "That kept financial conditions pretty buoyant, that keeps confidence high and is a buffer for consumers ... so you keep that virtuous cycle going between hiring and consumer spending that centers on the service industry."
• "Certain industries in certain regions are feeling the pain of the manufacturing slowdown but it’s not dominating the economy overall."

Iran fired several rockets at two joint U.S.-Iraqi bases in retaliation for the death of Iranian military leader Qasem Soleimani by the U.S. (Bloomberg)

A Boeing 737-800 with 176 people onboard crashed in Iran shortly after takeoff, killing everyone on board. (N.Y. Times)

President Trump approved an emergency declaration for Puerto Rico after an earthquake struck, knocking out power throughout the island. (Bloomberg)

U.S. equities have been both resilient and rangebound following the killing of Soleimani, but gold has seen a major boost, jumping to its highest level in close to seven years and continuing to climb.

The big picture: Even in the face of better-than-expected U.S. data released Tuesday morning, gold edged higher.

• It then took another leg up after Iran retaliated against the U.S. by striking U.S.-Iraqi bases Tuesday night.

Details: Gold prices have gained nearly 4% in the nascent year and the commodity has been one of the best performing assets in the world.

• Gold trails only returns for orange juice (yes, really), a gauge of energy infrastructure Master Limited Partnerships (MLPs), and the rebounding Chilean benchmark stock index, per FactSet data.

• It has delivered about triple the return of the Nasdaq and more than quadruple the S&P 500.
• Even crude oil (up 2.7% YTD), which also has gotten a price bump from the growing unease in the Middle East, has fallen well short of gold's gains so far in 2020.

Defense sector stocks have predictably seen major buying since the killing of Soleimani, in particular Northrop Grumman and Lockheed Martin.

Why it matters: The gains may not be temporary, analysts say.

• “These companies all have large portfolios of products and capabilities that will be in high demand from both their domestic and regional markets," GlobalData's head of research for strategic defense Daniel Jones says.
• “These gains will likely be sustained in the near term, given how politically untenable it will be to reduce defence expenditure at a time of heightened tensions during an election year.”

Plus, Moody's projected a bullish year for the sector in its 2020 outlook, expecting it to outperform the broader stock market, even before tensions between the U.S. and Iran flared.

• Analysts outlined an expectation for commercial aircraft deliveries to ramp up and defense spending to grow, thanks to major spending increases from the Trump administration.
• The grounding of Boeing's 737 MAX also weighed down 2019's earnings, providing space for a strong recovery in the sector.
• "Our profit growth forecast excluding Boeing is 7% in 2020 and 6% in 2021," analysts wrote in December.

Even after a very tough year in which farm debt has risen, sales have declined and the prices of key exports like soybeans have plummeted, large-scale U.S. farmers remain upbeat on their prospects, a new survey shows.

Driving the news: The latest results of the Purdue University and CME Group reading of the agriculture economy showed a slight decline in December, but that was down from an all-time high touched in November.

Methodology: CME and Purdue survey 400 farmers whose farms have a market value upwards of $500,000 on a series of five questions.

• A reading of 100 indicates that sentiment is neither improving or worsening from a baseline set between late 2015 and early 2016, and higher readings indicate respondents are more positive, while readings below 100 indicate more negative sentiment.

Foreign investors flocked back to emerging markets in December, data from the Institute of International Finance shows.

What happened: IIF estimates EM stocks and bonds drew $30.7 billion from foreigners in December, a significant increase from the $19.9 billion in November, and the continuation of a recovery from EM's summer slump.

• The primary driver was monetary easing by major EM central banks and the "phase one" U.S.-China trade deal, IIF economists Jonathan Fortun and Benjamin Hilgenstock write in the report.

The big picture: For the full year, emerging markets attracted inflows of more than $310 billion, well above the $194 billion of inflows seen in 2018.