Mass Protests And Mayhem Across The U.S. Have No Impact On Stocks, What Gives?

TOPLINE

Despite escalating protests in cities across the country over the killing of George Floyd, stocks have continued to rally—showing a sharp disconnect between markets and the economy—as investors look past the civic unrest and bet on a successful economic reopening from coronavirus shutdowns.

KEY FACTS

Crucial quote

“As painful as this is right now, it hasn’t gotten to the point where it changes the market’s outlook for a recovery—it’s that simple,” says Freeman. The protests are “not viewed as significant from an earnings standpoint, and that’s ultimately what the market comes back to” time and time again. The only way to justify current price levels, he adds, is that “the market isn’t looking at 2020, but instead ahead to 2021 and beyond that.”

Tangent

The market has pushed through turmoil in recent decades as well, Nicholas Colas, co-founder of DataTrek Research, noted in a report. Stocks still posted gains in 1999 after President Bill Clinton was impeached and in 2011 during Occupy Wall Street protests. “What matters to markets right now is how/when the US economy restarts from COVID Crisis shutdowns,” Colas argues. “If protests or political spillover start to hurt consumer confidence, that would spell lower stock prices.”

What to watch for

If protests continue for longer than expected and cause more economic damage in cities, that could pose a threat to the market’s recent rally, investors say. Not only that, consumer confidence (a key driver of stock market performance) could be pressured by continued civil unrest, warned RBC Capital Markets. Some analysts are also worried about President Trump’s warning that he would send in the military to help quell protests, while others fear that large groups of protestors could lead to a second wave of coronavirus infections. “Not only does the violence and damage to property hinder the reopening of the economy, but it surely also creates a hotbed for renewed infection,” Robert Carnell, head of Asia-Pacific research at ING, told the Times.

Chief critics

Stocks are rallying—even after several days of escalating protests across the country—because the market is blind to social justice, CNBC anchor Jim Cramer said on Monday. “The market has no conscience,” he added. “Investors are simply trying to make money.” That’s just the nature of the stock market, Quincy Krosby, chief market strategist at Prudential Financial, similarly told CNBC. “The market always seems heartless,” he said, adding “The algorithms almost certainly have no shred of empathy.”

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