Market calm cracks amid rising tensions with N. Korea

The market calm on Wall Street and around the globe has been broken by escalating tensions between the United States and North Korea.

U.S. stocks closed lower Wednesday for a second consecutive day as traders reacted to the latest bout of saber-rattling between the two countries.

Stock prices retreated and money flowed into so-called safe havens such as gold, which jumped nearly $17 per ounce, or 1.3%, and 10-year U.S. government bonds, where yields briefly dipped as low as 2.21%, the lowest level since late June.

“As things stand now, risk is definitely off the menu,” said Fawad Razaqzada, an analyst at Forex.com.

To be sure, market reaction on Wall Street has been muted so far.

The Dow Jones industrial average — which dipped late Tuesday, snapping a streak of nine record closes, after President Trump warned North Korea that the U.S. would respond to its threats with “fire and fury” — closed Wednesday down nearly 37 points, or 0.2%, to 22,048.70. But about three-quarters of the loss, or 28 points, was due to a 4.2% drop in Dow component Walt Disney, which reported disappointing earnings after Tuesday’s close.

Geopolitical threats, of course, are not new to markets, but they are hard for investors to handicap, Chris Verrone of Strategas Research Partners, a Wall Street firm, said in a research note.

“The reality is geopolitical events are nearly impossible to forecast and even more difficult to trade,” he wrote.

North Korea has been a market risk all summer, following the test launch of two missiles in July, and recent reports of its bolstered nuclear capabilities. Still, according to Strategas, political and geopolitical events “are not automatically big market movers after the knee-jerk response.”

South Korea’s main stock index, the Kospi, fell just 1.1% Wednesday. The Kospi was up 21% for the year at its July 24 peak but has given back 3.4% since then.