Wall Street Gets Edgy On Geopolitical Concerns: 5 Safe Bets

Geopolitical concerns are clearly on the rise over the last week or so, with Syria and North Korea dominating the headlines. While the White House accused Russia of trying to conceal the controversial chemical attack on Syria, President Trump plans to put immense political and economic pressure on North Korea, even if Beijing doesn’t. We are also tantalizingly close to the first round of presidential election in France, which can further rattle the markets.

Panic-driven investors are dumping risky assets, with the S&P 500 and the Dow Jones closing below a key technical level for the first time since U.S. election day. Also, the CBOE Volatility Index (VIX), a popular gauge of fear in the market, spiked 5.8% to its highest level since November.

But, traditional safe-havens are certainly getting a fillip as geopolitical risks in the Middle East, East Asia and Europe are driving investors to more secure sectors. Thus, investing in secure or defensive sectors like utilities and consumer staples shouldn’t be a bad proposition.

Wall Street Dips, Volatility Spikes

All the major benchmarks continued to remain in the red for the month of April, with the S&P 500 index losing ground in six of the past nine sessions. The S&P 500 and the Dow Jones closed below their 50-day moving averages for the first time since early last November.

It seems markets aren’t willing to maintain the “Trump rally”. In fact, the “fear gauge” is up more than 17% in the past two trading sessions, while since the beginning of this month the index has risen 29%.

Geopolitical Risks on the Rise

Ongoing geopolitical worries over Syria and North Korea are weighing on investors, leading them to seek low-risk assets amid increased uncertainty. The Wall Street has also been shaken by the French presidential election, with the first round of voting scheduled on Apr 23. Let’s take a look at the concerns:

Russia Accused of Suppressing Syria Attack Facts

White House officials alleged Russia of trying to cover up the ghastly Syrian chemical attack last week. The U.S. concluded that the Syrian military applied banned sarin gas in the attack that had inflicted severe casualty on many civilians.

Russia was accused of knowing that its ally Syria was planning to use sarin, given the close military cooperation between the countries. Secretary of State Rex Tillerson, in the meantime, is in Moscow for high-level talks as tensions have heightened after the U.S. attacked a Syrian air base last week, in response to the dastardly act by Bashar al-Assad and his men.

US Will Respond to North Korea

Investors fear that North Korea may conduct another nuclear test to mark the anniversary of the birth of the country’s founder on Apr 15. The rogue nation has already warned that it will launch a nuclear attack if provoked by the U.S. To diffuse the threat, President Trump is looking forward to press economic sanctions on North Korea.

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Trump, in the meanwhile, has explained to Chinese President Xi Jinping that a trade deal with China will be far better if the world’s second largest economy works with the U.S. to address the North Korea issue. But, he has also said that the U.S. will respond to Pyongyang itself if China, one of North Korea’s partners, doesn’t act.

French Election to Unnerve Markets

Don’t take anything for granted in politics and that’s exactly what is happening in French elections. A recent surge in support for euro skeptic candidate Jean-Luc Melenchon has added to the uncertainty. The outsider is now gaining an edge over other candidates following a late campaign push and strong performances in two televised debates.

This development has put “Frexit” fears back to the forefront at a time when Front National’s far-right candidate Le Pen already wants to shake-up the European Union. Frexit will spark more turmoil than Brexit as France is considered to be an integral part of both the Eurozone and the European Union.

Defensive Sectors Gain Ground

Against such widespread tensions, defensive sectors, such as utilities and consumer staples, have attracted buyers. The Utilities Select Sector SPDR Zacks Investment Research

Written By: Zacks Investment Research