Stock Market News For August 9, 2017

The Dow ended its 35-session record run of wins for the year on Tuesday, tumbling after Trump sounded off a fresh warning to North Korea. The blue-chip index was led lower primarily by a drop in shares of Merck (NYSE:MRK), DuPont (NYSE:DD) and Nike (NYSE:NKE). The S&P 500 and the Nasdaq also closed in the red. Ten out of the eleven primary sectors of the S&P 500 ended in negative territory. Losses for the broader market index were led materials, telecom and real estate sectors.

The Dow Jones Industrial Average (DJIA) closed at 22,085.34, declining by 0.2% or 33.08 points. The S&P 500 Index (INX) increased 0.2%, rising 5.99 points to close at 2,474.92. Meanwhile, the Nasdaq Composite Index (IXIC) closed at 6,370.46, declining 13.31 points or 0.2%. A total of around 6.22 billion shares were traded on Monday, above the last 20-session average of 6.15 billion shares. Declining issues outnumbered advancers on the NYSE by 1.73-to-1 ratio. On the Nasdaq, decliners outnumbered advancers by a 1.47-to-1 ratio.

Trump’s “Red Line” Challenged

Broader markets declined on Tuesday after President Trump announced that North Korea would be dealt with “fire and fury like the world has never seen”, if the rogue country continues to threaten the US. However, this “red line” was challenged later in the day when a spokesman from the Korean People’s Army (KPA) told reporters that Kim Jong-un was planning an attack on Guam Naval and Air base. Pyongyang has in the recent past tested several nuclear missiles and the one that it tested last month was said to bring mainland US within striking range.

After the renegade nation launched two intercontinental missiles last month, the UN voted unanimously to punish North Korea for such an act and imposed trade sanctions against North Korea which might cost it about $1 billion a year. In an act of rage, and blaming the US for influencing the decision, Pyongyang vowed today to make America pay dearly for this.

Markets had gained earlier in the session but closed with losses after Trump warned Kim Jong-un of dire consequences. Experts suggest that Trump would not be willing to take any actions now that North Korea has already crossed the ’red line’.

Volatility In The Market

The CBOE Volatility Index (VIX), which gauges fear in the markets, increased to about 11%, still trading near its all-time low. By all accounts, this has been the quietest stretch of trading since 1965. One estimate puts the current level of volatility at the lowest in 52 years. Since Jul 19, the S&P 500 has not gained or lost 0.5% over a single session. In fact, the index has swung 1% either way only four times over the entire year till date. The only exception to such placid behavior has been the Nasdaq, which has moved 1% over 11 trading days.

To put things in perspective, the market’s so called “fear gauge”, the VIX, continues to linger near its lowest point in 23 years and more. The popular measure of market volatility had plummeted to this level on May 8, within striking distance of where the market stands. Of course, this has translated into strong gains for the average investor, with the S&P 500 up more than 9% year to date.

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Written By: Zacks Investment Research