After a long weekend, in which the markets had just finished a nice five-day upside run, the S&P 500 (^GSPC, SPY) rose by over 1% and the Dow Industrial Average (^DJI, DIA) was up by 0.8%. Both indexes are up roughly 11% for the year. But then, traders woke up to more saber rattling by North Korea.
Today’s threats from North Korea came in the form of a hydrogen bomb test. U.S. Ambassador to the United Nations, Nikki Haley, said, “North Korea is begging for war!” As the trading day progresses, it seems markets are beginning to price in the unease—a not-unexpected reaction to the threat of a bomb that can obliterate anything and everything within a 25 mile radius with a heat wave reaching 300 degrees Fahrenheit.
A dash to gold and other safe havens is setting the tone for trading today. As the week progresses, the focus will switch (at least for traders) to debt ceiling issues, shrinking the Fed’s balance sheet, and other domestic concerns.
Some of those domestic issues are earnings. As the earnings season winds down, we get a few big names. One of the remaining biggest companies to report, Kroger (KR), has had a tough year with sales. Shares are basically flat, and cutting prices to compete with Amazon (AMZN) and Walmart (WMT) means less profits. While U.S. markets were closed yesterday, United Technologies (UTX) announced plans to purchase aircraft parts maker, Rockwell Collins (COL), for $30 billion.
This week is full of Fed speeches. Traders will be listening carefully to any hints about winding down the balance sheet and rate hikes. The Fed, which has indicated it may raise rates one more time this year, has some on Wall Street not so sure this will happen. The CME “FedWatch” tool sees a 42% chance of a rate hike this year.
Then there is the possibility of a category five Hurricane hitting the mainland of the U.S. later this week. After last week’s devastation in Texas and concurrent damage to the energy sector, another major hit would further raise gasoline prices, which are already up $0.33 at the pump in Florida—not to mention the possible loss of life and property at record levels.
Welcome to September, where 40% of the time the Dow is down 1.9% for the month. Fasten your seat belts. We could be in for a bumpy month!