I spoke too soon yesterday, about the typical dull, quiet summer market that we are experiencing. It now fees as if something has changed and the market feels qualitatively different. This might be a flash in the pan, yet my traders’ intuition (if there is such a thing) is telling me that something important is happening. There is a headline behind this, namely the strong verbal threats being issued back and forth between the U.S. and North Korea, but underlying conditions are fragile. North Korea’s threat to obliterate a major U.S. military base on the island of Guam is very inflammatory language to use against the world’s only superpower; President Trump’s response was also very strong.
Although threats of war in Korea can be expected to boost safe havens, and have done so, the movements have not been very large, and as Rex Tillerson moves to calm the rhetoric, few are expecting to war to break out over the coming days. However, it has been a while since we had a clear “risk on” market move, and as there is a growing conviction among analysts that stocks and risk are overpriced, this movement we see beginning now could be the start of a new trend.
I might be wrong, but I just got out of stocks, as yesterday’s sharp dive from new highs on the Dow Jones has spooked me. We also see the Japanese Yen and precious metals dominating the market with strength, and the U.S. Dollar advancing everywhere else, except energy.
This “risk on” move may die away quickly if tensions dissipate, but what happens over the next few days may give us some clues as to where the market might start to go when the holiday season ends in a few weeks.