Markets weigh risks of Malaysia airlines crash

July 21, 2014 2:30 pm  |  Comments: 1  | Views: 4411
    

News that a Malaysia Airlines passenger jet went down in Ukraine near the Russian border has spooked investors, causing stocks to lose altitude and investors to flock to so-called havens.

It is not unusual for investors to run for cover when unexpected events — with so many unanswered questions and potential consequences — occur. This is a volatile part of the world, as Ukraine and Russia have been sparring in the area for months.

The initial knee-jerk reaction of investors was dramatic, but asset prices have come back and rebounded a bit after the initial news broke. Wall Street is still trying to determine if the plane was brought down deliberately or whether it was a tragic accident. The plane allegedly had 295 people aboard.

So-called havens, or assets that are more “defensive” during turbulent times, also saw sharp moves.

Money poured into U.S. government bonds. The yield on the 10-year Treasury dropped to 2.47%, down from 2.54% yesterday, and from a level north of 2.50% before the crash news broke.

A closely followed fear gauge, known as the VIX, jumped more than 15% at one point.

Gold also surged. An ounce of the yellow metal is up over $20, or 1.6%, to $1,320.

Airlines took a hit, too. The S&P Airline index was down 2%. Shares of Boeing, whose aircraft was being flown when the Malaysia Airlines plane went down, were actually trading up 15 cents to $127.57.

Geopolitical risk often spooks markets, especially in the short term, as investors wait to gather more information and find out exactly what happened, says Gary Kaltbaum, president of Kaltbaum Capital Management.

And news like today’s plane crash in a part of the world that has been volatile is an event that gets Wall Street’s attention.

“If true (and the plane was shot down), combined with the Israeli situation, there is potential for powderkegs,” says Kaltbaum. “And with the market in the trees (and trading near new highs), there is potential for profit taking. But news will be fluid. If all hell doesn’t break loose, the (decline) should be short-lived.”

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