We have a very abbreviated market update this week. I decided it would be more productive to address the North Korea situation. Let’s keep it simple. There’s significant up-side resistance for the S&P 500 at 2,500 and there’s intermediate support at 2,450. If this seems conveniently straight-forward that’s because it is. This market has traded in a fairly narrow range with the big fat numbers being the primary support/resistance areas. Given the abbreviated trading week and barring any major new developments, it’s unlikely this we'll see a breakout from this range.
Examining North Korea and the Markets
No one wants to see a clash between two nations with nuclear capabilities. So, when the war-of-words between North Korea and the U.S. reached a new level earlier this month, markets briefly stumbled as investors grew uneasy. While we don't normally opine on geopolitical events, we wanted to help ease any financial worries you may have related to this recent conflict.
When sharing this analysis, we certainly do not have a crystal ball—and we recognize that any military escalation could affect far more than your investments. But, as we all look to see what’s on the horizon, we believe that historic perspective may help assuage concerns about the tension’s impact on your financial future.
What can we learn from the past?
Data from Strategas Research Partners shows us that while the markets often have negative reactions to events when they first occur—they can recover within days or months.
For instance, on the day of Pearl Harbor, the S&P 500 declined 3.8%, but it was back within positive territory 20 days later. And just last year, the S&P 500 dropped 3.6% when the BREXIT vote came through — then was up by 19.5% a few months later.
History also shows us that war often does little to bring down the financial markets. In the month that two atomic bombs fell on Japan, the S&P 500 gained 5.8%.
Of course, no one wants to imagine the tension with North Korea escalating into war.
What should you do now?
Looking forward, we must remember that the markets don’t always bounce back quickly after geopolitical events — but making fear-based choices can be very costly in the long run. No matter what happens, we are here to help you stay abreast of current market dynamics and focus on the economic fundamentals that drive lasting value.
We will continue to monitor the situation in North Korea, but headlines won’t distract us from pursuing our true goal: moving you toward the future you desire. If you want to discuss your specific strategy or investments in greater detail, please contact us any time.
And if you’d like to gain a wider understanding of how the markets have responded to geopolitical events in the past, explore the chart from CNBC and Strategas Research Partners included below at the end of this message.
“Geopolitics can create anxiety in financial markets, but aren’t going to bring the $18.5 trillion beast, otherwise known as the U.S. economy, to its knees.”
- David Rosenberg, chief economist and strategist at Gluskin Sheff
Source: CNBC, Strategas Research Partners