Wall Street's Focus Shifts to the Federal Reserve Amidst Overseas Conflicts
Amidst growing concerns, Wall Street's focus on the Federal Reserve outweighs overseas conflicts, as titans of finance emphasize the impact of geopolitical risks on the US economy
Financial experts have been cautioning about the significant threat to the US economy posed by looming geopolitical dangers for months. However, despite ongoing conflicts in the Middle East and Eastern Europe, the markets have been experiencing a year-end rally.
On Tuesday, the S&P 500 reached its highest level since January 2022, driven by new data indicating a decrease in inflation. This surge occurred in the midst of intensifying conflict in the Israel-Gaza war and the approach of the second year of the Russia-Ukraine war.
At present, Wall Street seems to be doubtful about the influence of war on the US economy, prioritizing the Federal Reserve and inflation rates over conflict abroad. JPMorgan CEO Jamie Dimon has consistently emphasized that geopolitical uncertainty is the foremost global risk.
During last month's New York Times DealBook Summit, he emphasized that the current state of the world could be the most perilous in decades. The ongoing wars in Ukraine, Israel, and Gaza have the potential to significantly impact global energy, food supply, trade, and geopolitics. There is even the possibility, he warned, of nuclear blackmail, using the threat of nuclear warfare to manipulate other countries into meeting certain demands.
He is not the only one concerned. According to EY's latest CEO Outlook Pulse survey, 99% of CEOs are altering their investment strategies in reaction to geopolitical challenges.
According to a survey by Natixis, 500 institutional investors from across the globe believe that the greatest threat to markets in the upcoming year is violent conflicts in foreign countries. The group cited geopolitical bad actors as the biggest macroeconomic risk for 2024, warning that their actions could disrupt global economic and market assumptions. This concern ranked higher than worries about central bank policy errors, a slowdown in the Chinese economy, and decreasing consumer spending.
The S&P 500 has increased by 9% since the Hamas attack on October 7, and by 10% since Russia's full-scale invasion of Ukraine in February 2022.
"Armchair forecasters raised concerns about the ongoing war in Ukraine and the October 7 terrorist attack in Israel," noted Marko Papic, Chief Strategist at the Clocktower Group, in a recent commentary. "Ultimately, neither event actually had an impact on the markets."
The focus is on the Fed as investors anticipate the outcome of policymakers' final meeting of the year on Wednesday. It is widely expected that the Fed will keep rates steady.
The weakening labor market and inflation rates suggest that Wall Street is anticipating interest rate cuts in 2024. Despite geopolitical concerns, investors have much to celebrate and are not allowing them to dampen their holiday cheer.
However, some economists say that it is a waiting game for the markets. "With heightened geopolitical tensions in the world, it's crucial that we don't confuse the subdued response we've seen over the past four to five weeks with markets being calm, because they are not," stated Sinead Colton Grant, the incoming chief investment officer at BNY Mellon, during last month's Reuters NEXT conference in New York.
Argentina to devalue peso by over 50% as part of emergency economic reforms
"The evolution is being closely monitored, and there is an assumption that these events will remain fairly contained. However, if that turns out not to be the case, we may see a sharp reaction in the markets, which could have wider repercussions beyond just the equity markets," she stated.
Argentina is set to devalue the peso by over 50% as part of emergency measures to aid the struggling economy, announced by Economy Minister Luis Caputo on Tuesday. The official conversion rate will change to 800 pesos per dollar from 365 pesos, a stark move just days into President Javier Mileis' term, according to my colleague Krystal Hur.
Milei's campaign promise was to replace the peso with the dollar in order to revitalize the economy. The peso has been artificially propped up by strict capital controls for years, leading to a 52% decrease in value against the US dollar this year. In an attempt to prevent the government from defaulting on its debt, Argentina's central bank has increased the printing of pesos, resulting in soaring prices.
This is the first step to address the hyperinflation issue, which resulted in Argentina's central bank raising its benchmark interest rate to 133% in October. Caputo emphasized Milei's campaign theme that "there is no money" and outlined additional measures, such as cutting new public works projects, not renewing labor contracts of more than one year, and reducing energy and transportation subsidies.
"We will be in a tough spot for the next few months, especially with rising inflation," he stated.
As for public works, Caputo expressed that "there is no funding available for projects that often only benefit politicians and business leaders."
The International Monetary Fund expressed its support for the new initiatives following remarks made by Caputo on Tuesday.
"I welcome the measures announced by Argentina's new Economy Minister, Luis Caputo. These bold initial actions aim to significantly improve public finances in a way that protects the most vulnerable in society and strengthens the foreign exchange regime," said Julie Kozack, IMF director of communications, in a press release.
UPenn names J. Larry Jameson as its interim president
The University of Pennsylvania's board of trustees has selected J. Larry Jameson, the longest serving dean, to step in as the school's interim president following the resignation of Liz Magill last weekend.
Jameson, the dean of UPenn's medical school, is set to lead the Ivy League institution during a time of crisis, according to CNN's Matt Egan.
The board of trustees has announced that Jameson will serve as interim president starting Tuesday and will continue in that capacity until a permanent president is selected.
In a recent announcement, Julie Platt, the temporary chair of UPenn's board of trustees, expressed gratitude for the opportunity to have Dr. Jameson's expertise and guidance during this period of change. Platt commended Jameson as an exemplary member of the university community and a dynamic, forward-thinking leader with significant involvement across all of Penn's 12 schools.
UPenns board chair Scott Bok and interim president Magill both departed just a week after Magill's controversial testimony on antisemitism before Congress. Magill faced immense pressure and struggled to answer questions regarding calls for genocide against Jews, ultimately stepping down on Saturday. Despite calls for Magill's resignation and the lack of a succession plan, Penn did not have a replacement in place until Tuesday.
Magill will continue to serve as a tenured professor at Penn Carey Law School. As UPenn's longest-serving dean, Jameson has spoken out against genocide as a form of hate. Additionally, he holds the position of executive vice president of the University of Pennsylvania for the Health System.
