U.S. equities and stock exchange traded funds retreated Monday as traders took a cautious stance in light of geopolitical risks in East Asia and concerns that the president Donald Trump’s wiretapping accusations could distract from the economic agenda.
The S&P 500 Index, along with related funds including the SPDR S&P 500 ETF (NYSEArca: SPY), iShares Core S&P 500 ETF (NYSEArca: IVV) and Vanguard 500 Index (NYSEArca: VOO), were 0.3% lower Monday.
Tensions in East Asia flared on saber rattling after North Korea launched fire ballistic missiles, weighing on global markets, reports Yashaswini Swamynathan for Reuters.
Further pressuring U.S. markets, some investors are worried that wiretapping accusations could sidetrack Trump away from his economic agenda of tax cuts and simplifying regulations, which have been fueling the recent record-setting rally.
“The market is susceptible to short-term swings and choppy behavior predicated on something Trump says,” Andre Bakhos, managing director at Janlyn Capital, told Reuters. “Most investors are positive about the Trump administration. However, there is caution that something could be said by the administration that could derail the enthusiasm.”
Meanwhile, political risk has ramped up in Europe where elections are going in full swing across the Netherlands, France and Germany.
“The ‘pothole’ is a political one with far-right parties gaining ground in opinion polls ahead of both a Dutch and French ballots in spring,” Luca Paolini, chief strategist at Pictet, said in a research note, according to Bloomberg. “We are scaling back exposure to European stocks, albeit retaining our overweight stance.”
Looking ahead, investors are watching out for the U.S. jobs report later in the week as a key indicator of economic data that could affect the Federal Reserve’s monetary policy at its upcoming March meeting. Many traders are already anticipating a rate hike in the next session, with J.P. Morgan Chase & Co. warning that hawkish Fed rhetoric has raised the likelihood of a short-term pullback.
“I think the market is suggesting to the Fed that it’s time to get on with it, and the earlier they take advantage of it, the more gradually they can go,” Brent Schutte, chief investment strategist at Northwestern Mutual Wealth Management Co., told the Wall Street Journal.
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