US ‘loaded’ for N. Korea and markets go up
PRESIDENT Donald Trump escalated his verbal volleys with North Korean leader Kim Jong Un on Friday, but key market indexes held steady as one of the worst stock weeks since the election eked out a tiny gain.
Markets defied gravity even as Trump issued perhaps his most provocative challenge yet to Kim, saying in a morning tweet that “military solutions” were “in place, locked and loaded,” and urged the North Korean leader to “find another path!” The Dow Jones industrial average of 30 major US companies began the week at 22,100 and dropped 1.06 per cent to notch it’s secondworst week of the year.
The Dow, Standard & Poor’s 500-stock index and technologyheavy Nasdaq rebounded slightly on Friday. But so did gold, which is the go-to asset for investors seeking a haven from international crises.
The North Korean tensions, so far at least, appear not to have crossed the threshold into a likelihood of war even as the US president threatened that country with “fire and fury like the world has never seen” if it continues its development of an inter-continental nuclear missile capable of striking US shores.
North Korea responded that it was preparing to fire four missiles near the US Pacific territory of Guam, where America has military assets.
Traders said markets would be much worse if people thought that a conflict was at hand.
“The market isn’t pricing in a war with North Korea,” said Jeffrey Carbone, managing partner of Cornerstone Financial Partners in Charlotte, North Carolina.
“If markets thought we were going to war with North Korea, they would be down 10 per cent to 15 per cent.”
David Kass, a finance professor at the University of Maryland, said “there is an expectation that the (Korean) crisis will be resolved diplomatically.
Markets go down in the short run on fear of the unknown, such as whether a military confrontation between the US and North Korea could occur. But crises eventually do get resolved and markets recover and go on.”
The VIX, a widely followed fear gauge, leaped on news of the evolving Korean peninsula crisis.
But it was difficult to say any one event caused the market pullback. Earnings season is winding down with some missed estimates, against a backdrop of high market valuations.
The Walt Disney Company saw shares drop on disappointing earnings and the announcement that it would begin streaming content to deal with continuing pressure on its sprawling television business.
Macy’s, Kohl’s and J.C. Penney, all struggling mightily to revive their businesses, reported lackluster earnings. “We were coming into the week at record highs,” said Jeremy Glaser, Morningstar. com’s markets editor.
“Where there are signs things are less than perfect, we should not be surprised to see a sell-off. High valuations are more susceptible to potential corrections.”
Bond trader’s Jeffrey Gundlach contributed to the fear factor after he predicted the priced-forperfection S&P 500 - which has been breaking new records - will drop three per cent by the end of the year.
Trump further stoked the uncertainty with a domestic war of words with Senate Majority Leader Mitch McConnell.
The president taunted the Kentucky Republican for the failure of the GOP-led Senate to pass legislation to repeal Obamacare.
The extra-ordinary rise of the stock markets since 2009, and especially this year, has come courtesy of a trifecta of robust profits at big companies, low interest rates and a rare alignment of improving economies in the developed world.
The North Korean tensions, so far at least, appear not to have crossed the threshold into a likelihood of war even as the US president threatened that country with “fire and fury like the world has never seen” if it continues its development of an inter-continental nuclear missile capable of striking US shores.