President Trump and Kim Jong Un had a little bit of a dust up this week; both threatening the other with “fire and fury” and bombing Guam. Why would this have anything to do with the stock market?
Not only the Dow, NASDAQ, S&P 500 and AMEX, but markets the world over suffered a precipitous dip.
U.S. stocks opened lower, following the drops in Asia and Europe. Investors appeared to be moving their money into the relative safety of bond markets, because you know, when nuclear calamity strikes, bonds are always a safe bet? Yields on 10-year Treasuries, as well as British and European bonds, which move inversely to price, were lower on Wednesday morning. The price of gold, which tends to perform well in times of high tension, was also up. Gold holds, man! Remember that.
Now the drops and fears are based on threats of annihilation and I can understand why markets would be so jumpy. However, this week’s activity makes the point, yet again, that the markets are based on speculation and emotion. Like toms toms signaling to each other in an ancient tongue. It’s because of this that seasoned investors hold when amateurs get jumpy and amateurs sell low because…they get jumpy. The modest gains by the end of trading were due to U.S. Secretary of State Rex Tillerson telling Americans they could sleep safely. So there’s that….
— Reuters Top News (@Reuters) August 10, 2017
France’s CAC 40 share index dropped 1.5 percent by the afternoon in Europe, while Germany’s DAX fell 1.3 percent. Earlier, Japan’s benchmark stock index closed down 1.3 percent and South Korea’s declined 1.1 percent which makes sense since they share a border with North Korea. If anyone should be jumpy, it’s South Korea and Guam!
Still, the limited reaction suggests investors have not yet become completely alarmed by the escalating rhetoric. North Korea has long loomed as a potential disruptive force in Asia, and even South Korean investments have been largely stable during past exchanges. To date, there is still no real proof that North Korea has a delivery capacity to handle a nuclear warhead.
Consumer-focused stocks, media companies and banks accounted for much of the market decline. They outweighed gains in healthcare stocks and elsewhere. Small-company stocks fell more than the rest of the market. Even Disney stock dropped by four points, suggesting that even the charm of the Mouse could melt in a nuclear holocaust. But seriously, that had more to do with Disney/Pixar ending their licensing deal with Netflix to start their own streaming service.
Look, the threat of war is a constant cloud over the markets. So where does the smart money go during wartime? Defense stocks. Just look at Raytheon Company (RTN), which spiked up on the international trash talking. If this keeps up, put your money behind the war machine!