For many people the back-and-forth threats between President Donald Trump and North Korean leader Kim Jong Un have created paralyzing fears about the risk of nuclear war. But they can’t do much except watch the tensions unfold.
Investors around the world, however, don’t have that problem. They sold stocks this week, content to figure out the rest later.
The trend is easing somewhat in Friday’s U.S. trading, but only after much financial damage this week. As the U.S. and North Korea escalated their exchanges, major stock indices in every world power that a military or nuclear conflict would affect, as well as other key market gauges, suffered.
- The Chicago Board Options Exchange’s Volatility Index, a widely followed measure of investor fears known as the VIX, retreated Friday but remains on track to show a gain of more than 50 percent for the week. The measure had been close to a 20-year low, but with this week’s rally, it’s closer to its historic norm.
- The Standard & Poor’s 500, which tracks share prices of large U.S. companies, is down 1.3 percent for the week so far, on track for its second-worst week since Trump took office.
- South Korea’s benchmark stock index, the Kospi, closed 3.2 percent lower for the week, its worst showing since June 2016.
- Japan’s Nikkei 225 fell 1.1 percent to a new one-month low this week.
- China’s Hang Seng Index fell 2.5 percent, its biggest weekly drop in 2017.
- Markets often suffer when the threat of war is brewing. A similar trading pattern appeared ahead of the Iraq War in 2003, for instance. The potential for open-ended conflict tends to flummox investors, who are more used to parsing profit reports or the unveiling of new products on a company-by-company basis.
In response, they quickly move to the sidelines and wait to see what happens next.