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Mounting tensions between the US and North Korea threw markets for a loop on Thursday before settling on Friday. Now risk assets are at a critical juncture.
While the market reaction was swift and punishing, market experts don’t think it’s time to panic — yet.

Mere days ago, risk assets looked unstoppable. Now, amid escalating tensions between the US and North Korea, the market finds itself at a crucial crossroads.

The mounting conflict came to a head on Thursday, fueled by some fiery rhetoric from President Donald Trump and aggressive threats from North Korea, serving as a reckoning of sorts for some of the world’s most closely-watched markets.

The S&P 500 snapped out of an unprecedented streak of calm that day, falling 1.5%, the most since May. Treasury yields took a dive, while the yen — generally viewed as the world’s haven currency — strengthened. Gold, the ultimate safety destination, surged to a nine-week high. Meanwhile, the CBOE Volatility Index — or VIX, a gauge of stock market fear — spiked more than 40%.

“You just needed a match to light the fire, and that’s what North Korea did,” Komal Sri-Kumar, president of Sri-Kumar Global Strategies and the former chief global strategist at Trust Company of the West, told Business Insider by phone. “You didn’t have any ongoing stimulus measures, and at the same time we’re in an overvalued market. The market was all set for perfection, and it was no longer perfect, so we got a big decline.”

Then, on Friday, risk assets turned in a meager recovery, with stocks and Treasury yields rallying early in the session before petering out into the weekend.

That they didn’t rebound in fuller fashion isn’t particularly surprising to Kumar, who sees the market bunkered down in wait-and-see mode, not wanting to make any …read more

Source:: Business Insider

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