For the moment, it looks like the stock market is well over its latest bout of nerves related to Asia's economic problems but isn't quite sure it can relax and assume it's all over.
In a way, Wall Street seems to have settled into an approach toward Asia that looks similar to the Cold War doctrine of peaceful coexistence.During peaceful coexistence, there were periodic skirmishes (mostly diplomatic) between the United States and what was then the Soviet Union but never a war between the superpowers. At the time, relations between the two countries often felt shaky, but now we can see that peaceful coexistence did work.
Similarly, the stock market knows there is the potential for more trouble from Asia. But in the meantime, it is making money while it can.
Last week, a month after the market's most recent severe case of Asian jitters - which included a 207-point drop in the Dow industrials - stocks surged, sending the market's top indicators, the Dow among them, to new closing highs.
The market was following a pattern of big declines followed by big recoveries that has become commonplace on Wall Street since the Asian crisis pummeled stock prices in October. Part of the reason for the latest advance was the resignation of Japanese Prime Minister Ryutaro Hashimoto; the market was betting that his as-yet undetermined successor would do a better job at ending the Japanese recession and helping other Asian economies recover.
One reason for the market's recovery is that increasingly, traders are focusing on Asia's long-term prospects.
Prudential Securities economist Richard Rippe wrote last week that the surprise defeat of Japan's ruling Liberal Democratic Party, which led to Hashimoto's resignation, "creates risks in the short run, but longer term it could be a helpful jolt."
There are no guarantees that a new government will be able to achieve what Hashimoto has not. But interestingly, this uncertainty, which might have once made Wall Street very uneasy, now seems to be just part of stock market life.
Rippe was unfazed by the lack of answers. "It will take a while to know for certain, but I am inclined to believe this election's results provide a much needed `wake-up' call" to Japanese leaders, he said.
Edward Yardeni, chief economist at Deutsche Bank in New York, had a more cautious tone in an analysis he called "Asia: The Worst is Ahead." He expects Japan's recovery to be slow and painful and says steps the government must take "are more likely to push Japan deeper into recession over the rest of the year."
This could mean U.S. corporate profits are pinched further, and it could mean more drops on Wall Street if traders are overwhelmed by their nervousness. Nonetheless, the market, perhaps because it believes that ultimately Asia will recover, seems to have learned to coexist with the region's problems in the meantime.