S&P 500; US Indexes Fundamental Daily Forecast – U.S. Holiday Traders Show Limited Reaction to North Korea

U.S. stock markets are closed on Monday due to the Labor Day holiday so the price action taking place in the futures markets early Monday is limited electronic trading.

Prices gapped lower early Monday in response to the nuclear weapons test over the week-end by North Korea. The reaction by investors was the same as last week’s reaction to the news that North Korea launched a ballistic missile over Japan.

Investors sold risky assets like stocks and the U.S. Dollar and bought lower-yielding assets like the Japanese Yen, gold and U.S. Treasurys.

At 0500 GMT, the September E-mini S&P 500 Index futures contract is trading 2466.00, down 8.25 or -0.33%, the September E-mini Dow Jones Industrial Average is trading 21931, down 49 or -0.22% and the September E-mini NASDAQ-100 Index is at 5962.25, down 26.00 or -0.43%.

In Asia, safe haven demand drove up gold and the Japanese Yen while equities in Asia were pressured by elevated tensions on the Korean Peninsula early on Monday.

Japan’s Nikkei 225 was off 0.96 percent. The Korean Kospi was down 0.85 percent, but is moving above session lows. In Australia, the S&P/ASX 200 fell 0.35 percent, with declines seen across most sectors.

Stocks in China were mixed, with mainland markets shrugging off geopolitical tensions in the region. Hong Kong’s Hang Seng Index slipped 0.51 percent. On the mainland, the Shanghai Composite rose 0.14 percent and the Shenzhen Composite climbed 0.487 percent.

The current price action suggests that the earlier selling was a knee-jerk reaction that could soon blow over. Traders fell that unless there is U.S. military action then the whole incident may blow over in a day or two.

Geopolitical tensions and the uncertainties of potential nuclear conflict pose short-term risks. Therefore, I don’t see investors making major shifts to their portfolios at this time in response to North Korea. In the past, we’ve seen geopolitical risks influence markets over the short run, but it’s typically the broader fundamentals that will set the tone for markets over time.

At this time, the markets are being driven by slow steady economic growth and low inflation.