North Korea tensions continue to weigh on global stocks

Ivan Schwartz
August 13, 2017

In a note to investors, Paul Christopher, head global market strategist, and Tracie McMillion, head of global asset allocation, suggest, "the threat of a nuclear weapon is certainly more serious than previous threats, but that threat also may increase the probability of a diplomatic solution".

Late Tuesday, North Korea had said it was considering plans to fire missiles at Guam, a US territory, after Trump's warning earlier in the day. Lockheed Martin, Raytheon, General Dynamics and Northrop Grumman and the Dow Jones U.S. defense index was up 1.48 percent after hitting a record high. The Nasdaq composite lost 36 points, or 0.6 percent, to 6,315. An in-line print may not be enough to meaningfully rattle the Treasury market, however, which saw 10-year yields crack 2.20 percent on Thursday for the first time since June as part of a flight to safety.

For the week the S&P fell 1.4 percent and the Dow lost 1.1 percent - their largest weekly drops since the week ending March 24 - and the Nasdaq was off 1.5 percent.

After seeming to shrug off the heated rhetoric between U.S. President Donald Trump and North Korea over the last couple of days, investors are becoming more wary as the standoff between the two countries continues ratcheting up, said Michael Currie, vice-president of TD Wealth Private Investment Advice.

Second-quarter earnings have been stronger than expected with analysts now expecting S&P 500 earnings to have expanded 11.8 percent, up from 8 percent at the start of July, according to Thomson Reuters I/B/E/S.

At 11:08 a.m. ET (1508 GMT), the Dow Jones Industrial Average .DJI was up 41.67 points, or 0.19 percent, at 22,160.09, the S&P 500 .SPX was up 4.54 points, or 0.18 percent, at 2,485.45.

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SeaWorld Entertainment slid 6.2 percent after the theme park operator reported second-quarter revenue that fell short of Wall Street's expectations. The stock is up 54% so far this year.

Weaker-than-expected July consumer price data led investors to bet that benign inflation would keep the U.S. Federal Reserve from raising rates again this year. Brent crude slid 80 cents USA, or 1.5%, to US$51.90.

CURRENCIES: The dollar slipped to 109.05 yen from 109.20 while the euro weakened to $1.1763 from $1.1773. With one session left to go, the S&P 500 was headed for a weekly drop of around 1.6%, which would be its biggest since a fall of 1.9% for the week ended November 4, 2016.

A notable decline by Disney ( DIS ) is likely to help drag the Dow lower, with the entertainment giant under pressure in pre-market trading. "In this type of environment, bad news tends to send the market lower". Core prices had been expected to rise by 0.2 percent. Economists polled by MarketWatch are forecasting a 0.2% monthly rise for both measures, after flat reading the prior month.

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