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August 17 2017

North Korea may be a little country, but it can churn up big trouble.

The possibility that verbal hostilities between the United States and North Korea could trigger geopolitical conflict had investors on the run last week. In the United States, the Standard & Poor’s 500 Index fell by 1.4 percent, the Dow Jones Industrial Average lost 1.1 percent, and the NASDAQ Composite finished 1.5 percent lower.

Financial Times explained:

“The sell-off came as U.S. President Donald Trump escalated the war of words against the North Korean regime’s accelerated [program] of nuclear testing. Mr. Trump tweeted on Friday, “military solutions are now fully in place, locked and loaded, should North Korea act unwisely.”

While major U.S. indices headed south, the CBOE Volatility Index (VIX) – also known as Wall Street’s fear gauge – headed north. The VIX, which has been flirting with historic lows for much of the year, rose 44 percent in a single day, reported CNBC.

Stock markets in Europe and Asia were also affected by the saber rattling. National indices across Europe suffered weekly losses of 2.2 percent (Sweden) to 3.5 percent (Spain), according to Barron’s. In the Asia-Pacific region, India’s Sensex 30 lost 3.4 percent and South Korea’s Kospi was down 3.2 percent for the week.

Geopolitical concerns overshadowed some important economic news in the United States. Inflation, as measured by the U.S. Consumer Price Index, rose very little in July. In fact, consumer prices have been soft for five straight months, reported MarketWatch. Persistently low inflation could affect the Federal Reserve’s plan to raise interest rates this year. The Fed’s goal is 2 percent inflation.

Sources:
https://www.ft.com/content/44ce541e-5e13-365a-8918-2857025b8cb0
https://www.cnbc.com/2017/08/11/all-time-record-options-bets-on-volatility-spook-wall-street-over-leverage-risk.html
https://www.cnbc.com/2017/07/25/heres-what-happened-the-last-time-the-vix-traded-this-low.html
http://www.barrons.com/mdc/public/page/9_3063-economicCalendar.html (Click on U.S. & Intl Recaps, “Geopolitical worries deflate stocks”)
http://www.marketwatch.com/story/us-consumer-inflation-remains-soft-in-july-cpi-shows-2017-08-11

  • Data as of 8/11/20171-WeekY-T-D1-Year3-Year5-Year10-Year
  • Standard & Poor’s 500 (Domestic Stocks)-0.0140.090.1170.080.1170.053
  • Dow Jones Global ex-U.S.-1.615.112.70.54.9-0.5
  • 10-year Treasury Note (Yield Only)2.2NA1.62.41.74.8
  • Gold (per ounce)2.311-5.1-0.5-4.56.8
  • Bloomberg Commodity Index0.5-4.4-0.3-13.1-10-6.7
  • DJ Equity All REIT Total Return Index-2.13.8-28.29.68.7

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

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Bart A Zandbergen, CFP® is a Registered Investment Advisor with Optivest, Inc and a Registered Representative with Gramercy Securities, Inc. Investment advisory services are offered by Optivest, Inc. under SEC Registration and securities are offered through Gramercy Securities, Inc., member FINRA & SIPC, 3949 Old Post Road, Charlestown, RI, 02813, 800-333-7450.

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