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North Korea Market Volatility by the Numbers

After months of record calm, market volatility is back in a big way, and investors have North Korea (and Donald Trump) to thank for that. Will it last?

After months of record calm, stock market volatility is back in a big way, and investors have North Korea (and Donald Trump) to thank for that. Hours after our 45th President vowed to bring “fire and fury” to North Korea if its dictator, Kim Jong Un, continued his pattern of making nuclear threats against the West, stocks had their worst trading day in months.

Fears of a war with North Korea escalated when Kim Jong Un responded by threatening to fire missiles near Guam, a U.S. territory. Those fears translated to a huge spike in market volatility, sending the Volatility S&P 500 (VIX), a.k.a. the investor fear index, to its highest point since May.


Here’s what the VIX spike looked like on a chart:

Market volatility spiked in a major way last Thursday on North Korea fears.

A closer look at the numbers from last Thursday reveal just how impactful North Korea was on the stock market, at least for a day.

Thursday’s Market Volatility Numbers

204: That’s the number of points the Dow Jones Industrial Average fell, its biggest single-day drop-off since mid-May—when James Comey’s memo about President Trump asking him to back off the Michael Flynn FBI investigation surfaced.

2.1%: That was how far the Nasdaq tumbled, the biggest percentage decline of any of the three major U.S. indexes—also the largest since the Comey revelation.

45%: The percentage jump in the VIX, which leapt from 11 to 16 after climbing no higher than 12.5 since May. But like the declines in the two stock indexes mentioned above, Thursday’s jump in the VIX fell just short of its Comey-related spike (47%) in May.

16: The reading in the VIX after last Thursday’s trading, the highest it’s been since the day after Donald Trump was elected.

2,562,477: That was the number of options contracts traded in the VIX last Thursday—a new single-day trading volume record for the investor fear index.

Despite such gaudy selling numbers and sudden surge in market volatility, it’s no reason for concern—yet. Friday was evidence of that: all three major U.S. indexes were up, and the VIX sank back below 15. Who knows what will happen next with this North Korea situation, but at least the initial shock—and Wall Street fear—has worn off.

It could be a fleeting moment of investor panic like the one we saw in May, though admittedly the threat of nuclear war is a much scarier prospect than a war of words between a U.S. president and the former FBI director. I tend to side with Tim Lutts, my boss and Cabot’s president.

As our Paul Goodwin wrote last week (before the big down day in the market), Tim thinks that a military conflict with North Korea is unlikely to happen since it’s the biggest worry on everyone’s mind.

“As Tim sees it,” Paul wrote last Thursday morning, “the most obvious problem, the one dominating the headlines, attracts the attention of all the best thinkers. They put their massive brains to work on the problem and explore all the possibilities and assess all the possible solutions. And they usually come up with a workable answer.”

I hope Tim is right—and not just for the sake of my portfolio!

North Korea and the Market

There is no doubt that escalation in tensions with a country as unhinged as North Korea is cause for concern. And certainly those fears spilled into the stock market in a big way last Thursday.

But right now, the heated exchanges between Kim Jong Un and Donald Trump are just words. And after sleeping on it, investors realized that too. North Korea was a nice excuse for investors to knock stocks off their record-high perch. But with market volatility already subsiding, it does not yet appear to be the start of a larger correction that could threaten the ongoing bull market.


Chris Preston is Cabot Wealth Network’s Vice President of Content and Chief Analyst of Cabot Stock of the Week and Cabot Value Investor .