Crossing Wall Street Review – August 11, 2017
Should We Worry About North Korea?
By Eddy Elfenbein, editor of Crossing Wall Street and portfolio manager of the AdvisorShares Focused Equity ETF (NYSE Arca: CWS)
On Tuesday, the Dow snapped a 10-day winning streak. This streak got a lot of attention in the financial media, but I can’t say I was terribly impressed. For one thing, most of the increases were very small. In the history of the Dow, there have been 17 win streaks of 10 or more days. This last has smallest cumulative gain of all of them.
We also have to remember that the Dow is a price-weighted index. As a result, a company like Goldman Sachs has the second-highest weighting in the index, even though it has the fifth-smallest market value. The S&P 500 is weighted by market value, and it barely budged during the Dow’s winning streak. In fact, the S&P 500 fell four times in those 10 days. It was precisely companies like Goldman Sachs and JP Morgan that helped power the Dow to its new highs.
With the recent war of words over North Korea, investors are starting to feel anxious. The South Korean economy punches above its weight in the world economy. There are several prominent Korean corporations but in the last two weeks, the larger ETFs tracking South Korea have lost more than 7%.
Over the past several months, Wall Street has brought back its old habit of freaking out in the short-term over something that turned out to be nothing major. Remember the Brexit panic? The S&P 500 had its biggest daily drop in nearly a year. But shortly after that, cooler heads prevailed and doomsayers were—yet again—proven wrong.
Nearly the same thing happened after last year’s election. At one point on election night, the Dow futures were down more than 800 points. The end of the world never came, and the Dow is sitting on a nice 20% gain since the election.
My point isn’t to defend or criticize any of these political events. Rather, I’m encouraging you not be swept up by unreasonable fears. Stock prices are like a global blood-pressure machine. Historically, the U.S. stock market has been able to rally during highly unsettling times for the country and the world. Any drop in U.S. equity prices is good for stock-pickers.
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