US-North Korea war of words can derail Wall Street stock rally

Cracks are showing in what has been a virtually non-stop U.S. equity rally after a rapid escalation of tension between North Korea and the United States this week.

Market analysts expect that the pullback in stocks due to the increasingly aggressive tone in exchanges between Washington and Pyongyang will continue, although investors hope that the selling will not escalate to a correction - a decline of 10 per cent or more.

The benchmark S&P 500 index tumbled more than 1 per cent on Thursday, only the third time this year it has fallen that much, while the Nasdaq shed more than 2 per cent.

"Markets are looking for any reason at all for a reset. That reset is being triggered by North Korea geopolitical concern and stretched valuations," said Peter Kenny, senior market strategist at Global Markets Advisory Group in New York. "I do think we could see markets pull back between 1 and 5 per cent."

The S&P is trading near its most expensive valuation level since 2004, as measured by the price-to-12-month forward earnings ratio.
READ MORE

Trump's 'fire and fury' threat is a gift for North Korea's propaganda setup

Anyone who thought August might offer a lull in geopolitical crises got a rude awakening when, from the confines of his New Jersey golf resort, Donald Trump essentially foretold a thermonuclear war with North Korea. Asked about the north’s recent missile tests, he said Pyongyang had “best not make any more threats to the US”, or “they will be met with fire and fury and frankly power the likes of which the world has never seen before”.

Though the relationship between the US and North Korea can hardly be called stable, this so-far-rhetorical escalation is something new. Washington has rarely, if ever, used language infuriating and colourful enough to match Pyongyang’s style, but times have changed. One news outlet has even set up a game called Who said it: Donald Trump or Kim Jong-un?

While this would all be amusing if it wasn’t for real, the world is facing the real possibility of instability, military escalation, and a potential nuclear conflict that could cause millions of casualties. In an ironic role reversal, many are now pondering whether Trump’s US is in fact any more rational than Kim’s North Korea.
READMORE