S&P 500; US Indexes Fundamental Daily Forecast – Jump in Volatility Signals Fear in the Market

Stocks are under pressure on Wednesday at the mid-session as the tension between the United States and North Korea continues to heat up. Most of the reaction is to President Trump’s warning on late Wednesday and North Korea’s comment about exploring the idea of hitting U.S. territory Guam with a missile strike.

In the cash market, the blue chip Dow Jones industrial Average is trading 22028.67, down 56.67 or -0.26%. The benchmark S&P 500 Index is at 2470.41, down 4.51 or -0.18% and the tech-based NASDAQ Composite is trading 6345.37, down 25.09 or -0.39%.

U.S. equity indexes opened lower in response to comments from the previous day. The selling was also in response to lower prices in Asia and Europe.

Late Tuesday, President Trump warned North Korea about facing “fire and fury” if North Korea delivers more threats against the U.S.

North Korea responded to the threat with a warning of their own saying it was “carefully examining” the idea of a missile strike in Guam, a U.S. Pacific territory.

Investors took protection in traditional safe haven assets and put option positions. The U.S. Treasury Note yield hit its lowest level since June 28 and gold futures surged more than 1 percent. The CBOE Volatility Index (VIX) widely considered the best gauge of fear in the market, hit a one-month high before trading around 11.7.

Investors also poured money into defense stocks with Lockheed Martin, Raytheon and Northrop Grumman all hitting record highs. Money also flowed into consumer discretionary stocks.

Some of the selling pressure came in reaction to corporate earnings from Disney. The company posted better-than-expected quarterly earnings but its sales missed expectations.

Looking ahead to the rest of the session, investors are trying to determine if the current sell-off is a short-term event or something that could linger and lead to more significant selling pressure.

The market may just trim a little from the top, which would be understandable since it appeared to be overextended since the Dow crossed 22,000.

Right now, we’re going to treat the current selling as a much needed short-term correction. However, any signs that the U.S. is preparing for an attack on North Korea and/or the actual launching of missiles by North Korea would likely lead to more significant selling pressure.