How Does the Stock Market React to Protests?

Text size

The U.S. is experiencing painful civil unrest across the country in the aftermath of the Memorial Day death of George Floyd while in Minneapolis police custody as well as the recent deaths of Ahmaud Arbery in Georgia and Breonna Taylor in Kentucky. Yet the stock market hasn’t reacted.

All three major U.S. stock indexes finished higher Monday, leaving the
S&P 500
down about 5% for the year, while the
Dow Jones Industrial Average
wasstill down double digits for the year. Big-tech shares, such as
Apple
(ticker: AAPL) and
Microsoft
(MSFT), have performed better than average, pushing the
Nasdaq Composite
up almost 7%, excluding dividends, so far in 2020.

That lack of reaction isn’t surprising in one regard: Wall Street filters most news through the lens of share prices. It’s a voting machine on the future of corporate profits.

Still, investors are constantly on the lookout for economic risks. They don’t always come from conventional sources such as earnings announcements. Few pundits correctly called how Covid-19 infections would derail the global economy this year.

The first thing Wall Street does when something new and unexpected happens is look to history for precedents. In this instance, that exercise sends analysts back to painful periods including President John F. Kennedy’s 1963 assassination, the 1965 civil rights march in Selma, Ala., the large 1967 Vietnam War protests in Washington, D.C., the 1968 assassination of Dr. King and the 1992 L.A. riots which broke out in the aftermath of the acquittal of several police officers put on trial for beating Rodney King.

What does the reaction to these events show? Historically, the market looks past most civil unrest. Stocks aren’t significantly more volatile in the months following any of the events listed. What’s more, the S&P rose in each year under study. Annual gains, excluding dividends, ranged from about 4% to 20%.

The market, to this point in history, could be forgiven for not reacting to headlines about civil unrest, a point made by a few Wall Street strategists in Monday research reports. Nicholas Colas, co-founder of DataTrek Research, for instance, also noted in a report the 2011 Occupy Wall Street movement didn’t impact stocks all that much either.

The walk through history shows, in one respect, the overall resilience of the market. That resilience has been sorely tested in 2020 with the Covid-19 pandemic combined with new civil unrest. That makes this year different from other historical episodes, but with the Dow, Nasdaq, and the…