Rising geopolitical tension rattled financial markets around the world Thursday, sending U.S. stocks to the biggest loss since May and stoking demand for haven assets.
The S&P 500 Index halted an unprecedented stretch of calm on American equity markets and the CBOE Volatility Index spiked to its highest since April after President Donald Trump dialed up his warning to North Korea on threats to American allies. Gold surged to a nine-week high, the yen advanced below 110 per dollar and Treasuries strengthened.
Risk assets succumbed Thursday to a third day of saber rattling by Trump and Kim Jong Un, as the spat threatened to boil over into military confrontation. The selloff in U.S. stocks halted a streak of 15 days without a swing of 0.3 percent in either direction for the S&P 500 and jolted the VIX above 16 for only the fourth time this year. Gold futures neared $1,300 and crude slumped toward $48 a barrel.
“The markets in general are very on edge and they’re very leery about risk,” said Mariann Montagne, a portfolio manager at Gradient Investments LLC, which oversees about $1.4 billion. “When earnings are not beating expectations there’s a sell off in the companies, and we’re just not seeing that money reinvested because of the geopolitical risks.”
Geopolitical tensions may be the trigger for the latest bout of risk aversion, but with global equities trading near record highs and yield premiums on high-yield debt creeping up, some of the biggest names in the asset management industry have already been warning that it’s time to take risk off the table.
Pimco told investors to pare U.S. equities and junk bonds, but keep exposure to real assets, such as inflation-linked debt, commodities and gold. T. Rowe Price cut its stock allocation to the lowest level since 2000. Morgan Stanley strategists said investors should consider betting against U.S. junk-bonds as recent price weakness may be the beginning of a correction.
Terminal users can read more in our Markets Live blog.
Here are some important upcoming events:
- The central bank’s inflation puzzle means Friday’s CPI data in the U.S. will get close attention.
Here are the main moves in markets:
- The S&P 500 Index lost 1.5 percent to 2,438.25 at 4 p.m. in New York. That’s the steepest slide since May 17 and the lowest close since July 11.
- The VIX rose 45 percent to 16.12, it’s highest closing price of Donald Trump’s presidency.
- The Nasdaq Composite Index sank 2.1 percent and the Dow Jones Industrial Average lost 200 points.
- The Stoxx Europe 600 Index declined 1 percent to the lowest since March 27.
- The MSCI Emerging Market Index fell 1.4 percent.
- The Bloomberg Dollar Spot Index fell 0.1 percent.
- The euro rose 0.1 percent to $1.1772.
- The British pound fell 0.2 percent to $1.2978.
- The yield on 10-year Treasuries declined five basis points to 2.20 percent, the lowest since June 26.
- Germany’s 10-year yield decreased two basis points to 0.41 percent, the lowest in six weeks.
- Britain’s 10-year yield dipped three basis points to 1.081 percent, the lowest in more than six weeks.
- West Texas Intermediate crude rose fell 2 percent to settle at $48.59 a barrel.
- Gold climbed 0.5 percent to $1,283.28 an ounce, the strongest in two months.