After a volatile week of geopolitical risk-induced trading, U.S. equities and stock exchange traded funds surged Monday.
U.S. markets slipped last week on rising tensions between North Korea and the U.S., along with a number of lackluster earnings reports. However, the equities market pared most of the losses Monday as some traders attributed the strength to solid corporate earnings, better-than-expected economic data out of Japan and investors repricing the risk associated with North Korea, the Wall Street Journal reports.
“The move up [in markets]today is being driven by the fact there’s been a little bit of a sigh of relief that you haven’t seen further escalation,” Supriya Menon, senior multiasset strategist at Pictet Asset Management, told the WSJ.
In another sign of growing calm in the markets, the widely observed gauge of market fear, the CBOE Volatility Index or VIX, also plunged 20.4% to 12.4 Monday, reflecting investors’ diminished concerns over risk in the markets. The VIX surged more than 50% in a single session last week on the saber rattling rhetoric between Pyongyang and Washington.
Others saw the pullback as a buy opportunity in a positive economic environment. Analysts argued that the market moves Monday reflected the tendency of investors to buy socks following any retreats, which has helped limit both the scale and duration of stock declines this year and pushed major indices toward all-time highs.
“After the damage to the markets last week, you’ve got investors who will come back in,” Art Hogan, chief market strategist at Wunderlich Securities, told the WSJ.
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