Equities | Politics & Geopolitics
Unrest. Looting. Rebellion. Riots. All these terms and many more dominate news headlines as protests erupt across the US following the tragic killing of George Floyd by police officers in Minneapolis. Hopefully, the protests won’t distract from the urgent need to address the underlying issues that lead to such killings.
Despite the gravity of the events, US stock markets are up over 4% since the riots started – you would be forgiven for thinking that the streets of the US are calm and peaceful. The fact that the US was coming out of lockdown and so economic activity was at rock bottom could certainly be one reason for markets shrugging off the news. Another is that the riots are not expected to change monetary or fiscal policy. There’s no new stimulus bill that is being proposed in response to the riots.
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Unrest. Looting. Rebellion. Riots. All these terms and many more dominate news headlines as protests erupt across the US following the tragic killing of George Floyd by police officers in Minneapolis. Hopefully, the protests won’t distract from the urgent need to address the underlying issues that lead to such killings.
Despite the gravity of the events, US stock markets are up over 4% since the riots started – you would be forgiven for thinking that the streets of the US are calm and peaceful. The fact that the US was coming out of lockdown and so economic activity was at rock bottom could certainly be one reason for markets shrugging off the news. Another is that the riots are not expected to change monetary or fiscal policy. There’s no new stimulus bill that is being proposed in response to the riots.
Perhaps, the larger factor could simply be history. We looked at some of the biggest periods of social unrest in the US since 1965 including the 1968 Chicago riots after Martin Luther King’s assassination, the 1977 NY blackout looting, the 1992 LA riots and the 2014 Ferguson riots. We looked at 13 episodes in total, and we found that on average stock markets rallied by over 2% after the unrest started. If anything, the rallies were stronger after the unrest than before (Chart 1).
The larger impact in the end could be political. Four of the 13 episodes occurred in presidential election years: the 1968 Chicago riots, the 1992 LA riots and the 2016 Milwaukee and Charlotte riots. And all three saw the winning party change – Republican Nixon won the 1968 election, replacing Democratic Lyndon B Johnson; Democratic Bill Clinton won the 1992 election, replacing Republican George H.W Bush; Republican Trump won the 2016 election, replacing Democratic Obama.
Admittedly, the sample size is small, but it appears the incumbent party suffers from the deterioration in law and order. Betting markets are certainly taking notice, with the odds of Trump winning the election plunging over the past week (Chart 2). So, while the current riots may not dent markets, they could end up affecting the election outcome.
Bilal Hafeez is the CEO and Editor of Macro Hive. He spent over twenty years doing research at big banks – JPMorgan, Deutsche Bank, and Nomura, where he had various “Global Head” roles and did FX, rates and cross-markets research.
(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)