North Korea’s determination to wield nuclear power took a mammoth leap forward according to reports. One U.S. Intelligence Agency says the Hermit Regime has the capability to shrink a nuclear warhead to fit on the tip of an intercontinental ballistic missile.

The news greeted investors yesterday; essentially, it was ignored as all the major indices climbed off the canvas early to see midday gains and fresh intraday records for the S&P 500 and the Dow Jones Industrial Average.

However, the wheels came off the markets as the gloves came off and President Trump was forced to comment on the escalating provocation from North Korea during a briefing on opioid addiction at his Bedminster golf course.

He did not mince words:

"North Korea had best not make any more threats to the United States. They will be met with fire and fury like the world has never seen."

Those strong words finally shook the unshakable rally as stocks mostly came off the high point of the session.  There wasn’t a sense of panic, but it’s harder to ignore North Korea’s issues and various potential outcomes.

Vise-Grip

New sanctions were passed (15 -0) by the UN Security Council, and they are going to squeeze hard like a vise-grip on North Korea’s small economy.  Observers say the UN Resolution 2371 will cut one-third of the country’s annual $3.0 billion in exports. Essentially, it’s a ban on coal and iron ore exports, with heavy restrictions on seafood and labor as well. The most ominous aspect of the resolution is the elimination of past actions to avoid “adverse humanitarian consequences.”

The question is, will empty bellies and saber-rattling work?

Meanwhile, there are western foreign policies experts that believe North Korea is acting rationally in the aftermath of Iraq and Libya. It’s hard to believe Kim Jong-un is not insane but is he crazy enough to act on his threats?  He must know the path to retreat is going to become narrower now that President Trump has issued fighting words of his own. 

In the past, the West would pay a ransom to North Korea to buy time; but understanding that would mean “back to the well.’  The well is dry these days, and the ball (and perhaps a dozen nuclear warheads) are in Kim Jong-un’s court. 

After the Close

There was fire and fury in after-hours trading on Tuesday, as every name that posted financial results saw their shares meltdown. It didn’t matter if companies beat or guided higher; the reaction was swift.  Disney (DIS) declared war on Netflix (NFLX), sending both shares lower, along with Priceline Group (PCLN), TripAdvisor (TRIP), and Fossil Group (FOSL) that simply collapsed.

Last night’s trend of sell first ask questions later continues this morning with big reversals to the downside for shares in companies that posted impressive financial results and strong guidance.  It’s the normal anxiety that accompanies earnings season heightened by the record-breaking rally. 

The good news is this is when great stocks can go on sale and those are the moments we live for as investors.