The U.S. stock market, along with the rest of the world, is on high alert after President Donald Trump on Tuesday echoed World War II-era comments made by 33rd U.S. President Harry S. Truman before ordering the use of nuclear force against Japan.
“North Korea best not make any more threats to the United States,” Trump told reporters at his golf resort in Bedminster, N.J., warning that Pyongyang would be “met with fire and fury like the world has never seen.”
That was followed by reports that North Korea was exploring a ballistic strike aimed at U.S. territory Guam.
Here’s how the markets are reacting so far:
The Dow Jones Industrial Average
the S&P 500 index
and the Nasdaq Composite Index
showed remarkable resilience but dipped to session lows a little after 3 p.m. Eastern on Tuesday after the 45th president issued his most bellicose remarks to date, with the Dow snapping a multisession streak of records.
On Wednesday, the stock market traded firmly lower, with all three main U.S. benchmarks retreating.
Meanwhile, the CBOE Volatility Index
or VIX, has spiked by about 20% since Monday, with a 10% rise putting the so-called fear gauge at 11.81. Earlier in the session, the gauge touched its highest level since July 6, according to FactSet data. VIX readings, which measure S&P 500 index options bets 30 days into the future, are still below their historical average of 20, but because stocks fall faster than they rise, the reading tends to spike amid heightened worries.
Meanwhile, government paper and gold were drawing heavy interest from investors, with the 10-year Treasury note
for example, seeing its yield fall by about 5 basis points to 2.22%. Bond prices and yields move in the opposite direction.
It is unclear if volatility will remain elevated on Wednesday, but a combination of protracted volatility and a seasonal tendency for equities to slump in August and September may make Wall Street vulnerable to a sharp pullback, with haven assets jumping conversely.
“August has historically been one of the worst performing and volatile months of the year for stock markets. This month, however started with many investors living in La La Land, as seen by extremely low volatility and extremely high complacency despite high valuations and mounting political uncertainty. It’s been clear for a while that it wouldn’t take much to upset the apple cart, it’s been more of a question of which event and when,” wrote Colin Cieszynski, chief market strategist at CMC Markets wrote in a Wednesday research note.
Back in 1945, Truman warned Japan that “they may expect a rain of ruin from the air, the like of which has never been seen on this earth,” unless they offered the U.S. its unconditional surrender.
How Trump’s threat of ‘fire and fury’ is rattling stock-market calm – MarketWatch