troubleNorth Korea may be a little country, but it can churn up big trouble.

The possibility that verbal hostilities between the United States and North Korea could trigger geopolitical conflict had investors on the run last week. In the United States, the Standard & Poor’s 500 Index fell by 1.4 percent, the Dow Jones Industrial Average lost 1.1 percent, and the NASDAQ Composite finished 1.5 percent lower.

Financial Times explained:

“The sell-off came as U.S. President Donald Trump escalated the war of words against the North Korean regime’s accelerated [program] of nuclear testing. Mr. Trump tweeted on Friday, “military solutions are now fully in place, locked and loaded, should North Korea act unwisely.”

While major U.S. indices headed south, the CBOE Volatility Index (VIX) – also known as Wall Street’s fear gauge – headed north. The VIX, which has been flirting with historic lows for much of the year, rose 44 percent in a single day, reported CNBC.

Stock markets in Europe and Asia were also affected by the saber rattling. National indices across Europe suffered weekly losses of 2.2 percent (Sweden) to 3.5 percent (Spain), according to Barron’s. In the Asia-Pacific region, India’s Sensex 30 lost 3.4 percent and South Korea’s Kospi was down 3.2 percent for the week.

Geopolitical concerns overshadowed some important economic news in the United States. Inflation, as measured by the U.S. Consumer Price Index, rose very little in July. In fact, consumer prices have been soft for five straight months, reported MarketWatch. Persistently low inflation could affect the Federal Reserve’s plan to raise interest rates this year. The Fed’s goal is 2 percent inflation.

For more about the long-term effects inflation can have on your retirement portfolio, read Chapter 24 of my book Mindful Money: Simple Practices for Reaching Your Financial Goals & Increasing Your Happiness Dividend.

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* These are the general views of Jonathan DeYoe and they should not be construed as investment advice for any individual.

* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.

* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.

* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.

* All indices referenced are unmanaged. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.

* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.

* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.

* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.

* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.

* The original “Weekly Commentary” was prepared by Peak Advisor Alliance. Jonathan DeYoe is a member of Peak Advisor Alliance and adds, subtracts and edits before publishing.

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

* Past performance does not guarantee future results. Investing involves risk, including loss of principal.

* You cannot invest directly in an index.

* Consult your financial professional before making any investment decision.

* Stock investing involves risk including loss of principal.

* “Little Country. BIG Trouble!”

Sources:

https://www.ft.com/content/44ce541e-5e13-365a-8918-2857025b8cb0 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/08-14-17_FinancialTimes-S_and_P_Clocks_Worst_Week_Since_March_Despite_Fridays_Bounce-Footnote_1.pdf)
https://www.cnbc.com/2017/08/11/all-time-record-options-bets-on-volatility-spook-wall-street-over-leverage-risk.html
https://www.cnbc.com/2017/07/25/heres-what-happened-the-last-time-the-vix-traded-this-low.html
http://www.barrons.com/mdc/public/page/9_3063-economicCalendar.html (Click on U.S. & Intl Recaps, “Geopolitical worries deflate stocks”) (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/08-14-17_Barrons-Global_Stock_Market_Recap-Footnote_4.pdf)
http://www.marketwatch.com/story/us-consumer-inflation-remains-soft-in-july-cpi-shows-2017-08-11
https://www.federalreserve.gov/faqs/money_12848.htm

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