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Fears of a U.S.-North Korea war have dropped

KRT via AP

Investors have decided that, at least for now, war between the U.S. and North Korea is much less likely than it seemed last week, sending up stocks today with their greatest gains in at least two months.

  • The Dow Jones was up 0.6% and the S&P 500 by 1%. Closer to the theater of potential war, South Korean stocks rose 0.6%, and Hong Kong by 1.36%.
  • North Korean leader Kim Jong Un "is big on using coercive diplomacy to move closer to what he wants ... but he doesn't intend to fight," said James Lewis at the Center for Strategic and International Studies, speaking to Axios last Friday.
  • "He'd like to split the United States and South Korea. But he doesn't want war. He knows what will happen as well as anyone."

Looking forward, GeoQuant, a AI-based firm, said its models show a leveling-off of risk of war through the end of the year as well. The "trend supports an analysis that North Korea remains ultimately under Chinese control, checking the risk of outright war on the Korean peninsula," GeoQuant said in a blog post.

The greatest threat is miscalculation: Neither the U.S. nor North Korea seems to want war, but history shows that war often happens by its own rhythm. "Someone will decode that the other side is going to do something and take action to block it," Lewis said. Hence, geostrategists are likely to remain on edge as the brinksmanship between the two countries continues.