Nevertheless, traditional safe havens jumped, with the benchmark 10-year U.S. note yield hitting its lowest level since June 28 and gold futures surging more than 1 percent. The Swiss franc, meanwhile, was on track to post its biggest one-day gain against the euro in more than two years.

The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, rose nearly 12 percent to trade at 12.25.

“Despite the threat from President Trump yesterday, markets are hoping that tensions will subside during coming weeks. Hence the relatively small 7 bp fall in UST 10 year yield, and the restrained increase in the price of gold. Such investor hopes are also reflected in US equity prices,” said Komal Sri-Kumar, president of Sri-Kumar Global Strategies.

“For all these variables to move significantly further would require an actual act of hostility — signs that the U.S. is preparing an attack on North Korea and/or actual launching of missiles by North Korea, for example. If such an event happens, the market reaction is likely to be far more pronounced.”

Defense stocks spiked, with Lockheed Martin, Raytheon and Northrop Grumman all hitting record highs.

Wall Street also focused on corporate earnings from Disney. The company posted better-than-expected quarterly earnings but its sales missed expectations. The media giant’s stock dropped approximately 5 percent in early trade and shaved off about 43 points from the price-weighted Dow.

Mylan Labs and Wendy’s were among the companies that reported earnings before the bell Wednesday, with 21st Century Fox set to report after the close.

Calendar second-quarter earnings have been mostly strong. More than 70 percent of S&P 500 companies that had reported posted better-than-expected earnings while 69 percent have beaten of sales, according to data from Thomson Reuters I/B/E/S.

The strong earnings season helped propel U.S. stocks to record highs.

In economic news, productivity in the second quarter rose 0.9 percent, more than the expected gain of 0.7 percent. Mortgage applications rose by 3 percent last week, boosted by a drop in rates. Wholesale trade data showed inventories posted their biggest gain in six months.

—CNBC’s Alexandra Gibbs contributed to this report.

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