Geopolitical Problems Scare Wall Street Investors
It’s been another interesting morning on Wall Street as fears over relations with an Asian country presented themselves in a sell-off. No, not China this time — North Korea. This morning President Trump announced he was calling off a planned summit with North Korean leader Kim Jong Un, citing “tremendous anger and open hostility” in some of the statements coming out of the hermit country in recent days (including calling Vice President Mike Pence a “political dummy”). Following that news, the Dow Jones Industrial Average fell 250 points. As CNN Money notes, the S&P 500 and Nasdaq also shed 1% each today before rebounding some.
This spat with North Korea is the latest in a series of geopolitical issues that, as Janney Capital strategist Mark Luschini put it, have “suffocated” the market despite several strong earnings reports from various companies. Most notably this includes fears that the United States was nearing a trade war with China. While those worries have calmed some in recent days, it must be noted that China is a huge factor in U.S.’s relationship with North Korea. To that point, President Trump has even suggested that Chinese president President Xi Jinping may have had a hand in Kim Jong Un’s change in tone.
Outside of China, there are also talks of other tariffs this morning — specifically auto tariffs. That’s because Commerce Secretary Wilbur Ross announced this week that his department was launching an investigation into whether foreign auto imports posed a threat to U.S. national security. Predictably this news caused foreign automakers like Toyota and Honda to fall a few points while domestics like General Motors and Ford gained slightly.
Speaking on recent tariffs threats, Horizon Investments chief global strategist Greg Valliere told CNN Money, “It’s extremely ill-advised by the Trump administration.” He went on to note the effect various headlines have had on the stock market, saying, “We seem to roll from one news cycle to the next, whether it’s trade, North Korea or Iran.” Speaking of Iran, while the market did take a bit of a hit after the President announced he was pulling out of the Iran nuclear deal, it also rebounded later in the day.
While some of President Trump’s fiscal policies like the Republican-backed tax cuts have goosed the markets in recent month, the consistent threat of tariffs coupled with geopolitical relationship troubles continue to bring volatility to stocks. Although some news items like the death of the Iran deal can easily be shrugged off by the market, it can be hard to predict which headlines will cause lasting sell-offs. So will tensions with North Korea eventually pull prices back down once again? We’ll have to wait and see.