The US has recently experienced a number of political events that have had immediate repercussions in the investment sector. Many analysts, however, believe that the markets’ responses are short term and that there will be little impact on the financial world in the long run.
On the 8th of August President Donald Trump issued a warning to the leader of North Korea, Kim Jong-un, stating that he would unleash “fire and fury” in response to any military provocation from the East Asian country. The warning came shortly after North Korea announced they had successfully created a miniature nuclear warhead small enough to fit inside the top of their missiles. Following the confrontation the Dow Jones Industrial Average experienced its largest one-week drop since March, falling by 1%, or 234.49 points, to 21,858.32. Other indexes followed suit, with the Nasdaq Composite reaching 6256.56, down by 1.5%, and the Standard & Poor’s 500 index dropping 1.4% to 2441.32. Despite this downward trend many experts, such as chief economist and strategist at Gluskin Sheff, David Rosenberg, believe that this is a short-term change and that the damage that this geopolitical conflict has caused is unlikely to last.
The Dow Jones Industrial Average, after having regained some ground, was again hit following the president’s response to the recent events at Charlottesville on the 12th of August. In the wake, the index dropped to 21,674.51, a fall of 0.8%. The Standard & Poor’s 500 index saw a further decline of 0.6% to 2425.55 and, for the fourth week running, the Nasdaq Composite was down, sliding 0.6% to 6216.53 in its longest weekly losing streak since May 2016. While President Trump’s controversial statement lend, in part, to these declines, other world political events may have had impacts on the economy too. Terror attacks in Spain as well as controversial minutes from both the European Central Bank and the Federal Reserve contributed to a period of investment uncertainty. Rafiki Capital Management’s Head of Research and Strategy, Steven Englander, believes that these dips will, again, be equally short-lived as the political situation re-stabilizes.
Without the threat of an acute political or economic crisis, investment markets should return to previously good performance levels, boosting the country’s economic growth. Indeed the Atlanta Fed’s GDP Now predicts that the US’s GDP will increase by 3.8% in the third-quarter of 2017, with the current drops in market activity being the result of short term anxiety amongst investors.