Dow soars 137 points as Wall Street sees North Korea tensions easing

U.S. stocks traded sharply higher on Monday as traders saw geopolitical tensions easing.

The Dow Jones industrial average rose 137 points, with Goldman Sachs and Apple contributing the most gains. The S&P 500 gained 0.97 percent, with financials, real estate and information technology leading all sectors higher. The Nasdaq composite outperformed, rising 1.1 percent, as shares of Tesla, Amazon and Facebook all rose.

DJIA Dow Industrials 22006.83
148.51 0.68%
S&P 500 S&P 500 Index 2466.55
25.23 1.03%
NASDAQ NASDAQ Composite 6333.29
76.74 1.23%

Stocks were coming off their second-worst weekly performance of the year, with the S&P 500 falling 1.43 percent.

“What we’re seeing is a bit of a relief rally,” said Peter Cardillo, chief market economist at First Standard Financial. “The reason for that is the rhetoric [between North Korea and the U.S.] has toned down, for the moment.”

Secretary of State Rex Tillerson and U.S. Secretary of Defense James Mattis stated that the current U.S. administration would continue to pursue diplomatic resolutions with Pyongyang. On Sunday, the two U.S. officials wrote in a commentary piece published in the Wall Street Journal that “the U.S. has no interest in regime change or accelerated reunification of Korea.”

Trader working on the floor of the New York Stock Exchange

Andrew Burton | Getty Images
Trader working on the floor of the New York Stock Exchange

South Korean stocks also climbed, with the iShares MSCI South Korea capped exchange-traded fund (EWY) popping 2 percent. The index was also on track to post its biggest one-day gain since May 8, when it gained 2.55 percent. The EWY dropped 4.57 percent last week.

Stocks were also helped by signs global growth is chugging along. The Japanese economy posted better-than-expected economic growth for the second quarter, growing at an annualized rate of 4 percent.

Investors also dumped safe-haven asset gold, as futures for December delivery fell 0.4 percent to 1,289 per ounce after hitting a two-month high last week.

“In our experience, geopolitical shocks tend to provide a buying opportunity, unless there is: an underlying economic slowdown (as was the case prior to Iraq invasion of Kuwait); clear cut overvaluation; or a monetary tightening,” wrote Andrew Garthwaite, Credit Suisse global equity strategist, in a note to clients. “Even if the main proponents’ behaviour may appear aggressive, their advisors and sponsors are likely to act as an ameliorating force.”

The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 12.4, down about 20 percent. The index posted its largest weekly gain since December 2015 last week as the North Korea situation escalated with strong warnings from President Trump.

“August has been historically bullish for volatility, although we’ll likely need to see some smoothing out of the movement in the VIX before another spike occurs, albeit a macro event like action taken in North Korea or other ‘black swan’-type events,” said Andrew Thrasher, portfolio manager at the Financial Enhancement Group.

Meanwhile, no major data is set to come out on Monday.

In Europe, stocks were trading in the black, with the Stoxx 600 index advancing 1.2 percent, while Asia markets finished trade on a mostly positive note on Monday, after investors digested another batch of data.

—CNBC’s Sam Meredith and Javier E. David contributed to this report.

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