As the Dow dips.
25 May, 2018FORTUNE.COM
Following President Donald Trump’s letter on Thursday canceling the summit with North Korean leader Kim Jong Un next month, investors appear to be bracing for more rockiness ahead.
The cancellation is the latest development in talks to potentially denuclearize North Korea. The nation and its southern sister vowed to work on removing nuclear weapons on the peninsula, and broker a potential peace treaty with the U.S.
The Dow Jones Industrial Average shed about 100 points by noon to 24,803, while “safe haven” asset, gold, inched up by 1%. At the same time, investors preparing for potentially more aggressive actions bought in the aerospace and defense companies. The iShares U.S. Aerospace & Defense Exchange Traded Fund, which tracks a basket of companies including Lockheed Martin and Raytheon, also ticked upward by 1%.
“We now have an unpredictable escalation path,” David Kotok of Cumberland Advisors wrote in a Thursday note of Trump’s letter. “We have a cash reserve in our Exchange Traded Fund accounts.”
Earlier on Thursday, Trump penned a letter to the North Korean leader, writing: “I feel it is inappropriate, at this time, to have this long-planned meeting. Therefore, please let this letter serve to represent that the Singapore summit, for the good of both parties, but to the detriment of the world, will not take place.”
That, in turn, followed on a Pentagon assessment of Kim, which concluded that the North Korean leader has been motivated by a desire to stay in power.
At the same time though, investors appear hopeful of peace talks continuing at a future date. The stock market losses have been relatively contained. Already, the Dow has moderated some of its losses, having fallen as much as 280 points during the day.
While Trump rejected the June Singapore meeting, he still left the door open for future talks.
“This is a small market negative because it increases geopolitical uncertainty,” wrote Terry Haines of Evercore ISI, adding: “We view Trump’s letter as a signal to North Korea that the U.S. will not accept the familiar North Korean shakedown pattern in the run-up to a meeting, and that the U.S. is prioritizing results over appearances.”