The news that North Korea claims to have tested a hydrogen bomb sent the stock market futures in the early morning hours lower. I received a number of emails wondering if I felt this would affect the markets adversely and if so by how much. Many wondered if this was the start of a Black Swan Event for stocks.
Black Swan Events
The world today is full of media outlets and social commentary. As investors it is hard to insulate ourselves from the fear of black swan type events. However, black swan type events which are extremely rare and many investors might argue have actually never yet happened in the markets, are those events that most do not foresee.
The claim of a hydrogen bomb testing by North Korean should not, in my opinion, adversely affect the markets for more than a few hours to a day at most, unless there is more political fallout from the event. I do not believe it is a black swan type event. The political fallout would have to be major and involve escalation of military powers outside North Korea.
We could see the markets open lower than expected to start the day but I am not expecting this to amount to any type of catalyst to the downside for stocks.
Wednesday’s Market Direction
I will not be surprised to see that by the close of trading on Wednesday, the event has been discounted by investors. The invasion of Crimea and subsequently Ukraine by Russia in 2014 had a very small impact on the markets at that time. I am not expecting this event to have any more reaction than those two events did.
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