Stocks decline as tensions with North Korea heat up

Stocks declined Wednesday as U.S.-North Korean relations heated up.

The Dow fell 60 points, with Walt Disney contributing the most losses. The 30-stock index snapped a streak of nine straight record closes in the previous session.

The S&P 500 pulled back 0.2 percent, with the consumer discretionary sector leading decliners. The Nasdaq lagged, falling 0.4 percent.

President Donald Trump warned North Korea on Tuesday about facing “fire and fury” if North Korea delivers more threats against the U.S.

North Korea responded by saying it was “carefully examining” the idea of a missile strike on Guam, a U.S. Pacific territory.

“A North Korean military strike would unambiguously constitute an act of war against America. I therefore have full confidence that Kim Jong-un will not take such a drastic step,” said Jeremy Klein, chief market strategist at FBN Securities. “Hence, the volatility that arose since yesterday afternoon should soon subside.”

Nevertheless, traditional havens jumped, with the benchmark 10-year U.S. note yield hitting its lowest level since June 28 and gold futures surging more than 1 percent. The Swiss franc, meanwhile, was on track to post its biggest one-day gain against the euro in more than two years.

“Despite the threat from President Trump yesterday, markets are hoping that tensions will subside during coming weeks. Hence the relatively small 7 bp fall in UST 10 year yield, and the restrained increase in the price of gold. Such investor hopes are also reflected in US equity prices,” said Komal Sri-Kumar, president of Sri-Kumar Global Strategies.

“For all these variables to move significantly further would require an actual act of hostility — signs that the U.S. is preparing an attack on North Korea and/or actual launching of missiles by North Korea, for example. If such an event happens, the market reaction is likely to be far more pronounced.”

Defense stocks spiked, with Lockheed Martin, Raytheon and Northrop Grumman all hitting record highs.

Wall Street also focused on corporate earnings from Disney. The company posted better-than-expected quarterly earnings but its sales missed expectations. The media giant’s stock dropped approximately 5 percent in early trade and shaved off about 43 points from the price-weighted Dow.

Mylan Labs and Wendy’s were among the companies that reported earnings before the bell Wednesday, with 21st Century Fox set to report after the close.

Calendar second-quarter earnings have been mostly strong. More than 70 percent of S&P 500 companies that had reported posted better-than-expected earnings while 69 percent have beaten of sales, according to data from Thomson Reuters I/B/E/S.

The strong earnings season helped propel U.S. stocks to record highs.

In economic news, productivity in the second quarter rose 0.9 percent, more than the expected gain of 0.7 percent. Mortgage applications rose by 3 percent last week, boosted by a drop in rates. Wholesale trade data showed inventories posted their biggest gain in six months.

Fred Imbert

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