Both U.S. and Chinese stock indexes are down early Tuesday following House Speaker Nancy Pelosi’s arrival in Taiwan.

Chinese indexes were down more than 2% early Tuesday and U.S. stocks were also in the red, though less significantly so, according to Google’s market data. The decreases are largely due to uncertainty stemming from escalating tensions between the U.S. and China, and possible geopolitical risk emerging from the visit, according to The Wall Street Journal.

“China will show her displeasure by ratcheting up retaliatory actions, but it won’t get out of hand given its economy is weak,” Rajeev De Mello, a global macro portfolio manager at GAMA Asset Management in Geneva, told Bloomberg. “However, the risk is if there is any military ‘incident,’ which could lead to an accidental military escalation, which would stress global financial markets.”

In Asia, Hong Kong’s Hang Seng Index closed down 2.36% on the day while the Shanghai Composite Index was down 2.36% in anticipation of Pelosi’s visit. In U.S. markets, the S&P 500 and Dow Jones Industrial Average were both down by close to 1% early Tuesday morning, but the S&P 500 rallied back to being down 0.25% and the Dow to down 0.65% after Pelosi safely landed, according to Google data.

U.S. stocks were off to a lower start Tuesday, with analysts blaming rising tensions between the U.S. and China as House Speaker Nancy Pelosi prepared to visit Taiwan.https://t.co/MN89H3gqMPpic.twitter.com/HLtQAtLvIU

— MarketWatch (@MarketWatch) August 2, 2022

The seasonal timing of Pelosi’s visit also exacerbates the reverberations through financial markets, Mark Vitner, managing director and senior economist at Wells Fargo, told the Daily Caller News Foundation.

“August almost always seems to bring geopolitical crises,” Vitner said. “The markets are generally thin, as many traders in the U.S. and Europe are on vacation, so events like these tend to lead to more volatility.”

One outlier to the the sagging markets are defense companies. Raytheon and Lockheed Martin are both up Tuesday by roughly 1% and 2%, respectively, while some Chinese arms manufacturers are up 20%, according to the WSJ.

BREAKING: House Speaker Nancy Pelosi lands in Taiwan on a visit that could significantly escalate tensions between the U.S. and China. https://t.co/Fb5U6fbrgB

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China told citizens to “prepare for war” in a Friday social media post, the state-sponsored Global Times reported. The communist nation also promised a “forceful” response should Pelosi make the official trip.

President Joe Biden recently told journalists that U.S. military leadership believe Pelosi’s expected trip is “not a good idea.”

Pelosi’s office did not respond to the Daily Caller News Foundation’s request for comment.

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