How Trump's threat of 'fire and fury' is rattling stock-market calm – MarketWatch

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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 DJIA, -0.18% the S&P 500 index SPX, -0.23%  and the Nasdaq Composite Index COMP, -0.57%  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.

Source: FactSet

On Wednesday, the stock market opened lower in early trade, with all three main U.S. benchmarks retreating.

Meanwhile, the CBOE Volatility Index VIX, +12.77% or VIX, has spiked by nearly 25% since Monday, with a 13% rise early Wednesday putting the so-called fear gauge at 12.40. That’s 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.

Source: FactSet

VIX spikes over the past two days.

Meanwhile, government paper and gold were drawing heavy interest from investors, with the 10-year Treasury note TMUBMUSD10Y, -1.65% for example, seeing its yield fall by about 5 basis points to 2.22%. Bond prices and yields move in the opposite direction.

Source: FactSet

Treasury yields rise on North Korea threat.

Other haven assets also were on the move, including gold futures GCZ7, +1.22% the Swiss franc USDCHF, -0.8829% and the Japanese yen USDJPY, -0.25%

It is unclear if the market will continue to show signs of fear, 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.

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