United States stocks tumble on North Korea worries

Air Force One at Joint Base Andrews last week. Credit Al Drago for The New York Times

Hong Kong's Hang Seng Index plunged by 2 percent, while South Korea's Kospi Index slumped by 1.7 percent.

The Dow Jones Industrial Average closed down 204.69 points, or 0.93 percent, at 21,844.01, the S&P 500 lost 35.81 points, or 1.45 percent, to end the session at 2,438.21 and the Nasdaq Composite fell 135.46 points, or 2.13 percent, to 6,216.87.

"Markets are looking for any reason at all for a reset. That reset is being triggered by North Korea geopolitical concern and stretched valuations", said Peter Kenny, senior market strategist at Global Markets Advisory Group, New York.

The Labor Department said its consumer price index inched up by 0.1 percent in July after coming in unchanged in June.

The S&P is trading near its most expensive valuation level since 2004, as measured by the price-to-12-month forward earnings ratio.

USA stocks deepened their losses following the latest Trump comments, and the S&P 500 volatility index, known unofficially as the "fear index", rose decisively.

"As a portfolio manager, you say, 'Do I think we'll get a war out of this?'" said Torsten Slok, chief worldwide economist at Deutsche Bank, referring to the back and forth between North Korea and President Donald Trump.

"Military solutions are now fully in place, locked and loaded, should North Korea act unwisely".

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Still, the S&P and the Dow were on track to post their biggest weekly loss in about five months and the Nasdaq on course to post its biggest weekly fall in about six weeks. The average for new 52-week lows this year is about 230 per day.

Six of the S&P 500 sectors ended higher. "If the answer is 'yes, ' then you better get defensive".

"There was some skittishness earlier but then some buyers stepped in", he said. "I think a few investors are capitulating to it".

The U.S. equity market is hovering near record levels and volume has been tepid following the onset of summer. Yields on bonds move inversely to their price.

The CBOE Volatility Index, better known as the VIX and the most widely followed barometer of expected near-term stock market volatility, rose the most in about 12 weeks.The index ended up 4.93 points at 16.04, the highest level since November 8, when Trump was elected president.

Investors instead turned to safe-haven assets such as gold, pushing it to a two-month high, and the Japanese yen rose.

In an inversion of the curve, the spot VIX rose above VIX futures, meaning traders are paying more for protection against a sudden sharp drop on the S&P than for protection in the future.

The three major US indices have sold off this week amid investors' jitters after Trump said on Tuesday that threats from Pyongyang would be "met with fire and fury like the world has never seen". When you're due, there's always going to be something that happens in the world that's going to make people nervous.

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