Titans of finance have been warning for months that looming geopolitical dangers are the biggest threat by and large to the US economy. But even as wars rage on in the Middle East and Eastern Europe, markets have been enjoying an end-of-year rally.
The S&P 500 reached its highest level since January 2022 on Tuesday, following new data that showed cooling inflation. The surge came even as the Israel-Gaza war intensified and the Russia-Ukraine war approached the end of its second year.
It appears that, for now, Wall Street is skeptical of the impact of war on the US economy and is instead more focused on the Federal Reserve and inflation rates than conflict abroad.
What’s happening: JPMorgan CEO Jamie Dimon has repeatedly said that geopolitical uncertainty is currently the biggest risk in the world.
He stressed, at last month’s New York Times DealBook Summit, that this may be the most dangerous time the world has seen in decades, and that the wars in Ukraine, Israel and Gaza could have far-reaching impacts on global energy, food supply, trade and geopolitics. It could even, he said, lead to nuclear blackmail (using the threat of nuclear warfare as leverage to coerce another country into meeting certain demands).
He’s not alone. EY’s latest CEO Outlook Pulse survey found that 99% of CEOs said they were shifting their investments in response to geopolitical challenges.
Violent conflicts abroad pose the largest threat to markets next year, according to a Natixis survey of 500 institutional investors from around the world.
“The biggest macroeconomic risk for 2024 is geopolitical bad actors who with one action can upset economic and market assumptions globally,” the group wrote. That risk ranked above policy errors by central banks, a slowing Chinese economy and dwindling consumer spending.
But the S&P 500 is up by 9% since Hamas’ October 7 attack and up 10% since Russia’s full-scale invasion of Ukraine in February, 2022.
“Many armchair forecasters bid up hysteria regarding the ongoing war in Ukraine and the October 7 terrorist attack in Israel,” wrote Marko Papic, Chief Strategist at the Clocktower Group, in a note this week. “In the end, neither event had any impact on markets.”
All about the Fed: Instead, investors appear locked in on the Fed.
Policymakers commence their final meeting of the year on Wednesday afternoon and investors are all but certain they’ll keep rates steady.
The labor market and inflation rates are showing signs of weakening, and Wall Street is betting that interest rate cuts will begin in 2024.
There’s much to celebrate — and investors aren’t going to let geopolitics get in the way of their holiday cheer.
Yes, but: It’s a game of wait-and-see for markets, say some economists.
“With geopolitical tensions elevated in the world, I think it’s very important that we don’t conflate the very muted response that we’ve seen, say over the last four to five weeks, with markets being very sanguine, because they’re not,” commented Sinead Colton Grant, incoming chief investment officer at BNY Mellon, at last month’s Reuters NEXT conference in New York.
“They’re watching the evolution very, very closely and there’s an assumption that all these events remain fairly contained. Should that turn out not to be the case, you will see markets react quite sharply, and that would reverberate beyond the equity markets,” she said.
Argentina will devalue the peso by more than 50% as part of emergency measures to help the nation’s struggling economy, the country’s Economy Minister Luis Caputo announced Tuesday.
The stark move changes the official conversion rate to 800 pesos per dollar from 365 pesos and comes just days into President Javier Milei’s term, reports my colleague Krystal Hur.
Milei campaigned on a pledge to get rid of the peso and replace it with the dollar in order to get the economy back on track. The peso has been artificially supported for years by strict capital controls, and its value has plunged roughly 52% this year against the US dollar.
Argentina’s central bank in recent years has printed more of the peso to help the country’s government avoid defaulting on its debt. That has resulted in skyrocketing prices.
The move marks the first of several steps to tamp down that hyperinflation, which led Argentina’s central bank in October to raise its benchmark interest rate to 133%.
Caputo on Tuesday reiterated Milei’s campaign theme that “there is no money” as he outlined other measures, including a cut to new public works projects, plans not to renew labor contracts that have been in effect for than one year and reducing energy and transportation subsidies.
“For a few months we’ll be worse off, particularly with inflation,” he said.
Regarding public works, Caputo said that “there’s no money to pay for works that often end up in the pockets of politicians and business people.”
The International Monetary Fund said Tuesday following Caputo’s remarks that it supports the new initiatives.
“IMF staff welcome the measures announced earlier today by Argentina’s new Economy Minister, Luis Caputo. These bold initial actions aim to significantly improve public finances in a manner that protects the most vulnerable in society and strengthen the foreign exchange regime,” Julie Kozack, IMF director of communications, said in a press release.
The University of Pennsylvania’s board of trustees is tapping J. Larry Jameson, its longest serving dean, to become the school’s interim president, replacing Liz Magill, following her resignation last weekend.
Jameson is dean of UPenn’s medical school and will take the helm of the Ivy League institution at a moment of crisis, reports CNN’s Matt Egan.
The board of trustees said Jameson will be appointed as interim president effective Tuesday and remain in that role until a permanent president is named.
“Penn is fortunate to have the benefit of Dr. Jameson’s experience and leadership during this time of transition,” Julie Platt, the interim chair of UPenn’s board of trustees, said in an announcement sent Tuesday afternoon.
Platt praised Jameson as a “consummate University citizen” and a “collaborative, innovative and visionary leader with extensive engagement with each of Penn’s 12 schools.”
Both of UPenn’s leaders as of a few days ago — board chair Scott Bok and Magill — departed Saturday just a week after Magill’s disastrous testimony before Congress on antisemitism.
Magill stepped down under immense pressure on Saturday after struggling to answer whether calls for genocide against Jews violates university rules. Magill had remained interim president until Tuesday. Penn did not have a succession plan in place despite a flood of calls for Magill’s resignation this week, a source told CNN.
Magill will remain on Penn’s faculty as a tenured professor at Penn Carey Law School.
Jameson is UPenn’s longest-serving dean and previously denounced calls for genocide as a form of hate, according to The Daily Pennsylvanian. Jameson also serves as executive vice president of the University of Pennsylvania for the Health System.
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