On Tuesday afternoon, the CBOE Volatility Index surged more than 38% to hit 14. Driving the ascent of the VIX was a trifecta of factors. While tensions over North Korea continued to escalate, markets were visited by familiar concerns over a policy paralysis in Washington. Meanwhile, news that a new category 5 hurricane, Irma, has hit the Caribbean caused severe alarm, even as Texas struggles to recover from the effects of Hurricane Harvey.
Against this backdrop, the spike in the market’s fear gauge is perfectly understandable. Since these events could drastically dent investor confidence, picking value stocks with low beta looks like a smart option at this point. Beta measures the tendency of a stock’s returns to respond to market swings. Low correlation stocks provide protection during turbulent times as they are less prone to day-to-day fluctuations.
North Korean Tensions Continue to Rise
In his latest comments on North Korea’s nuclear tests, Russian President Vladimir Putin described the crisis which might be “impossible” to resolve. These comments are in line with the sentiments of several market watchers who believe that the United States has yet to come up with a concrete response to North Korea’s actions. Given the limited success of strict sanctions in the past, the United States’ options seem severely limited.
Meanwhile, North Korea’s chief diplomat to the United Nations Han Tae Song said the United States could soon receive more “gift packages.” His comments come at a time when South Korea has expressed the view that its northern neighbor is likely to conduct an ICBM test around Sep 9. Clearly, rhetoric and speculation are likely to remain in abundance on the North Korean front.