N. Korea sends ripples through market
Too much ‘fire and fury’ talk leading to investor anxiety
Chatter about nuclear weapons capabilities, tough talk between the U.S. and North Korea and three consecutive days of losses in the stock market might have you wondering if you should stash your cash in an underground bunker for safe keeping in case the bluster morphs into a real fight.
While that type of emotional thinking might not seem irrational given recent threats from Pyongyang and President Trump saying the U.S. would respond with “fire and fury,” rejiggering your portfolio in a major way due to the recent saber-rattling isn’t a strategy recommended by most investment pros. While unsettling, the latest geopolitical scare has done little to dent the improving economic outlook.
What Wall Street does advise, however, is using this uncertain time to review your portfolio and make sure you aren’t taking on too much risk and can ride out a market drop if one occurs, says Sam Stovall, chief investment strategist at Wall Street research firm CFRA.
Indeed, given the market’s run to record highs this year in tame trading, the uncertainty caused by the North Korea crisis could trigger selling by investors sensing now is a good time to take profits.
The Dow Jones industrial average closed down Thursday nearly 205 points, or 0.9%, and is back below 22,000. It was its biggest daily point drop since May 17 and third day in a row of losses since the relationship between the U.S. and North Korea turned more contentious Tuesday. The Dow, which hit an all-time high Monday, is down 1.25% from its peak but still up 10.5% in 2017.
Nuclear war is what really keeps people up at night. But the preferred — and most likely outcome — is that the recent escalation in tensions between the U.S. and North Korea will be resolved diplomatically, not militarily. Secretary of State Rex Tillerson downplayed the risk of war Wednesday.
Wall Street pros say the main risk is if the war of words leads to combat.
“There has to be a real worry that there will be a march to war in order to sink the stock market’s buoyant tone,” says Chris Rupkey, chief financial economist at MUFG in New York.