Wall Street Vibes More Concerned about the Fed than Global Conflicts
The S&P 500 reached its highest record since January 2022 on Tuesday, as new data showed that inflation was cooling down. This climb occurred despite the intensifying Israel-Gaza and Russia-Ukraine conflicts, nearing the end of their second year.
Wall Street seems to be lukewarm regarding the impact of conflicts on the U.S. economy and is instead tending to the Federal Reserve and inflation rates, opting out of international turmoil.
Happening Now
Jamie Dimon, CEO of JPMorgan, has repeatedly claimed that geopolitical uncertainty poses the largest risk globally.
At the NYT DealBook Summit last month, Dimon warned that this might be the most perilous moment in decades, potentially leading to widespread nuclear coercion. The international conflicts in Ukraine, Israel, and Gaza could have profound impacts on the global energy and food supply, he said.
His sentiments are echoed in the recent CEO Outlook Pulse Survey from Ernst & Young, which reported that 99% of CEOs admitted to altering their investments in response to geopolitical challenges.
According to a Natixis survey of 500 global institutional investors, violent foreign conflicts dominate as the greatest threat to markets in the coming year.
"The largest macroeconomic risk in 2024 stems from geopolitical bad actors who can upset global economic and market assumptions with a single action," stated the group in a report. This risk outweighs political mistakes by central banks, China's economic expansion, and a moderate consumer spending decline.
However, the S&P 500 has increased by 9% since the Hamas attack on October 7 and by 10% since Russia's broad-scale invasion in Ukraine in February 2022.
Marko Papic, Chief Strategist of the Clocktower Group, commented this week, "Many so-called 'experts' in investment chairs are expressing hysteria over the ongoing conflict in Ukraine and the terror attacks of October 7 in Israel. In reality, these events have had no visible impact on the market."
What's Going on with the Fed?
Instead, investors are clinging to the Fed.
Political decision-makers will begin their final meeting of the year with the Fed on Wednesday afternoon, and investors are almost certain that zen rates will remain stable.
The labor market and inflation show signs of weakness, and Wall Street expects the zen cuts to begin in 2024.
There's much to celebrate, and investors are unwilling to allow geopolitics to ruin their Christmas spirit.
But Wait...
Some economists argue that this is a waiting game for the market.
In light of increasing geopolitical tensions worldwide, BNY Mellon's Chief Investment Officer Sinead Colton Grant expressed her concerns last month at the Reuters NEXT conference in New York.
"Given the heightened geopolitical tensions, I think it's crucial that we distinguish the very cautious reaction we've seen in the past few weeks from the highly optimistic market, as there is no such thing as BNY Mellon," she said.
"They are closely observing developments and count on all these events to be contained. If that doesn't happen, investors will experience a quite dramatic market reaction, and its impact will extend beyond stocks," she continued.
Argentine Peso Tumbles by Over 50%
Argentina is devaluing the Peso by more than 50% as part of immediate measures to support the ailing domestic economy, announced Wirtschaftsminister Luis Caputo on Tuesday.
My colleague Krystal Hur reports that this obvious adjustment to the official exchange rate, from 365 Pesos to 800 Pesos per dollar, occurred only a few days after President Javier Milei took office.
Milei campaigned on a promise to abolish the Peso and replace it with the dollar to revive the economy. The Peso has been artificially boosted by strict capital controls for years and has plummeted by about 52% against the dollar in 2022.
In recent years, the Argentine central bank has printed more Pesos to help the government avoid a debt default by covering its overdue debt payments. This flooding of the market drove up prices.
This step marks the first of numerous measures to curb hyperinflation, which led the Argentine Central Bank to raise its benchmark interest rate by 133% in October.
Caputo reiterated Milei's campaign theme "No Money" and outlined further plans, such as cuts in public works projects, terminations of employment contracts over a year old, and reductions in energy and transport subsidies.
"We will be in a much worse situation in the coming months, especially regarding inflation," Caputo said.
Regarding public works, Caputo remarked, "There is no money to finance projects that often end up in the pockets of politicians and businessmen."
Following Caputo's announcement, the International Monetary Fund (IMF) expressed support for the new measures.
"IMF staff members welcome the first measures announced by Argentine Economy Minister Luis Caputo. These bold first steps aim to significantly improve medium-term public finances and strengthen the exchange rate system, protecting the most vulnerable segments of the population," said Julie Kozak, IMF spokesperson, in a statement.
UPenn Taps Larry Jameson as Interim President
The Penn University Board of Trustees appointed its longest-serving dean, J. Larry Jameson, as interim president, replacing Liz Magill, who stepped down last weekend.
Jameson, dean of the University of Pennsylvania School of Medicine, will take over the Ivy-League institution during a challenging period, as reported by Matt Egan of CNN.
"The Board of Trustees is fortunate to have Dr. Jameson as interim President during this transition period," said Julie Platt, interim chair of the Penn Board, in a statement on Tuesday.
Platt commended Jameson as a "completely dedicated university citizen" and a "collaborative, innovative, and visionary leader who works intensely with Penn's 12 schools."
On Saturday, two Penn leaders – the Board Chair Scott Bork and Magill – resigned, a week after Magill failed to adequately address calls for condemning appeals for genocide against Jews, which allegedly violated the university's rules. Magill remained as interim president until Tuesday.
Sources have told CNN that Payne has not yet developed a succession plan despite numerous calls for Magill's departure during the past week.
Magill will retain her position as a tenured professor at UPenn's Carey Law School.
In a statement to Daily Pennsylvanian, Jameson, the longest-serving dean at UPenn, called calls for genocide a form of hate speech. He also serves as the executive vice president for the Health System of the University of Pennsylvania.
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Enrichment Data:
Recent developments indicate that businesses and investors are adopting a cautious approach to investment in the face of mounting geopolitical challenges. Critical factors driving investment strategies encompass:
- Geopolitical Instability:
- Regional Conflicts: Ongoing regional conflicts such as those in the Middle East and Europe stoke economic instability and deglobalization[1][2].
- Global Tensions: Escalating global tensions between major countries and economic blocs add to geopolitical pressures[2].
- Rate Fluctuations:
- Central banks grapple with an uncertain interest rate trajectory for 2025, impacting financial strategies and investment decisions[1].
- ESG Agenda:
- The ESG (Environment, Social, and Governance) agenda gains momentum. However, it brings complexity to investment strategies, particularly for industries with substantial environmental impact[1].
- Risk Mitigation:
- Companies focus on operational resilience, risk mitigation, and workforce agility to navigate multifaceted challenges[1].
- CEOs are rethinking their supply chains for the next three to five years, with nearly half aiming to reduce risks and a third seeking to minimize costs[1].
- Strategic Investments:
- Despite high liquidity levels and robust balance sheets, companies prefer a cautious investment approach. Nevertheless, substantial opportunities for strategic investments exist, promising rewarding shareholder returns[1].
- Technological Developments:
- Global AI growth promises productivity gains, but the tech race intensifies competition between major nations and economic blocs, exacerbating geopolitical tensions[2].
These elements collectively indicate that businesses and investors are now focusing on strategic risk management, supply chain diversification, and cautious investment strategies to navigate the complex and volatile global landscape of 2025.
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