Update – Breaking News
Despite escalating protests in cities across the country over the killing of George Floyd, stocks have continued to rallyâshowing a sharp disconnect between markets and the economyâas investors look past the civic unrest and bet on a successful economic reopening from coronavirus shutdowns.
Stocks are rallyingâeven after several days of escalating protests across the countryâbecause the market is blind to social justice, CNBC anchor Jim Cramer said on Monday. âThe market has no conscience,â he added. âInvestors are simply trying to make money.â Thatâs just the nature of the stock market, Quincy Krosby, chief market strategist at Prudential Financial, similarly told CNBC. âThe market always seems heartless,â he said, adding âThe algorithms almost certainly have no shred of empathy.â
Some key facts.
The stock market is moving higher on optimism about reopening the economy in spite of a perfect storm of bleak developments, including the global coronavirus pandemic, record unemployment numbers and often violent upheaval over racial inequality.
Amid escalating protests, the S&P 500 is still up over 1% so far this weekâand up almost 3% since the unrest began on May 26.
The marketâs subdued reaction to widespread protests over the death of George Floyd is âconsistent with the very sharp disconnect between markets and the economy,â Mohamed El-Erian, chief economic adviser for Allianz, told the Financial Times.
A crucial factor lifting stocks in 2020 is the unprecedented intervention of the Federal Reserve to support the economy: The Central Bank has injected nearly $3 trillion into financial markets since the end of February.
The Fed has enacted a slew of emergency initiatives including rate cuts, lending programs and credit facilities that are giving investors reassurance the Central Bank will step in to save the financial system if needed.
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 marketâs 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 Trumpâs warning that he would send in the military to help quell protests, while others fear that large groups of protesters could lead to a second wave of coronavirus infections. âNot only does the violence and damage to property hinder the reopening of the economy, but it surely also creates a hotbed for renewed infection,â Robert Carnell, head of Asia-Pacific research at ING, toldthe Times.
CRUCIAL QUOTE
âAs painful as this is right now, it hasnât gotten to the point where it changes the marketâs outlook for a recoveryâitâs that simple,â says Freeman. The protests are ânot viewed as significant from an earnings standpoint, and thatâs ultimately what the market comes back toâ time and time again. The only way to justify current price levels, he adds, is that âthe market isnât looking at 2020, but instead ahead to 2021 and beyond that.â
TANGENT
The market has pushed through turmoil in recent decades as well, Nicholas Colas, cofounder of DataTrek Research, noted in a report. Stocks still posted gains in 1999, after President Bill Clinton was impeached, and in 2011 during the Occupy Wall Street protests. âWhat matters to markets right now is how/when the U.S. economy restarts from Covid Crisis shutdowns,â Colas argues. âIf protests or political spillover start to hurt consumer confidence, that would spell lower stock prices.â
source Forbes
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