Reality Strikes the Stock Market
With fears of second waves and warnings from Fed Chairman Jerome Powell, the stock market has finally taken a dip after a weeks-long rally.
Here is today’s Foreign Policy brief: The U.S. stock market takes its first big dive after weeks of gains, North Korea says it is finished with U.S. diplomatic efforts, and Syria names a new prime minister.
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After Weeks of Gains, Stocks Take a Dive
The U.S. stock market appears to be facing reality after weeks of climbing amid mass unemployment, mass unrest in U.S. cities, and tens of thousands across the country—and the world—dying of COVID-19.
Two factors seem to be driving the dive: a less than optimistic economic outlook from Fed Chairman Jerome Powell on Wednesday and a realization that the easing of lockdowns may have been premature.
On a day when the S&P 500 dropped 5.9 percent, the VIX, known as Wall Street’s “fear gauge” climbed by approximately 50 percent to over $41, a level not seen since late April. Prior to Thursday’s dip, the S&P was on course to rapidly erase all its losses from 2020.
How come it took so long? Although it may be obvious to those outside the financial world that things are not looking good, the stock market is not always primed to focus on the present. On May 29, Foreign Policy asked leading experts to explain why the market rallied even as the world crumbled.
Many investors still see the world “through pre-pandemic-tinted lenses.” Diane Swonk, the chief economist at Grant Thornton said. “They take previous recessions as a benchmark and expect profits to rebound as in the past—and don’t see the much larger and longer-term challenges created by COVID-19, including our need to maintain social distancing in the future.”
It’s all about the Fed. Eduardo Porter, an economics reporter at the New York Times, is a little more blunt, highlighting the newfound clout of the U.S. central bank. “Wall Street types like to believe that the price of the stocks they peddle somehow represents the value of a business or the state of the economy. Nonsense,” he said. “These days, the price of stocks has mostly been a function of policy at the U.S. Federal Reserve: When the Fed unleashes waves of money on the economy, that money seeks assets to buy.”
For some more insights from our panel of economic experts, read the whole piece here.
On Thursday, the World Health Organization’s Africa regional director Matshidiso Moeti said shortages of testing kits remain a challenge for the continent, home to some of the world’s poorest countries. The gap between rich and poor when it comes to testing is stark. High income countries have tested their populations at a rate 40 times higher than low income ones.
What We’re Following Today
North Korea says “never again” to Trump-Kim meetings. On the two-year anniversary of the first meeting between President Trump and North Korean leader Kim Jong Un, Pyongyang seems in no mood to pursue closer ties, according to a statement by Foreign Minister Ri Son Gwon. “Never again will we provide the U.S. chief executive with another package to be used for achievements without receiving any returns,” Ri said. The statement called for a change of direction in U.S. policy and pointed out what North Korea believes is U.S. hypocrisy. “The U.S. professes to be an advocate for improved relations with the DPRK, but in fact, it is hell-bent on only exacerbating the situation,” Ri added.
Writing in Foreign Policy on June 4, Doug Bandow explained why opening lines of communication with North Korea—and shelving talk of denuclearization—could be “a rare, winning foreign-policy legacy for the Trump administration.”
Syria names new prime minister. Syrian Presdient Bashar al-Assad has fired Prime Minister Imad Khamis and replaced him with Hussein Arnous, the current water resources minister. A worsening economic outlook has led to a fresh outbreak of protests against Assad’s leadership: Hundreds of protesters took to the streets of Sweida this week to call for his overthrow.
Mass graves unearthed in Libya. Forces loyal to the internationally backed Government of National Accord (GNA) have reported discovering eight mass graves in territory formerly held by Khalifa Haftar’s Libyan National Army (LNA). The discovery comes as both sides enter peace talks, and has the potential to shame the main international backers of the LNA: France, the United Arab Emirates, Egypt, and Jordan. The number of corpses the graves contain has not yet been reported. The U.N. Mission in Libya has called for a “prompt, effective and transparent” investigation.
Keep an Eye On
More U.K.-EU trade talks planned. The United Kingdom and European Union have agreed to an accelerated round of trade talks as Prime Minister Boris Johnson attempts to keep his promise to get an agreement finalized by the end of the year. Talks will now take place each week between June 29 and July 27. Before those talks begin, Johnson and European Commission President Ursula von der Leyen will meet for talks on June 15.
Nepal’s map irks India. Nepal’s parliament is due to vote over the weekend on a new map of its border with India. The new map would extend Nepal’s territory into India, a move New Delhi rejects as a “unilateral act.” Nepal’s Prime Minister K.P. Sharma Oli said he has tried to broker talks with India over the land dispute. “We have told [India] that we want to resolve this through diplomatic talks … And the solution is that our land should be returned to us,” Oli said.
Odds and Ends
A statue of the seventeenth-century slave trader Edward Colston has been retrieved from the Bristol harbor where it had been gleefully disposed of during last weekend’s anti-racism protests in the British city. Bristol City Council said the statue “is being taken to a secure location before later forming part of our museums collection.”
A Spanish archeologist has been sentenced to two years in prison for his part in a hoax discovery of artifacts described by the lead police officer as “one of the greatest falsifications or manipulations relating to archaeological materials from the Roman world.” The archeologist, Eliseo Gil, claimed he’d found third-century pottery that referenced the crucifixion of Jesus as well as objects with Egyptian hieroglyphics. However, an inquiry found traces of modern glue, as well as the use of the letter J—a letter not used in the Latin alphabet—and references to French philosopher René Descartes. Under Spanish law, Gil is unlikely to serve time in prison for the offense.
That’s it for today.