Civil unrest in the US: should markets be worried?
Head of Investment Strategy and Economics and Chief Economist, AMP Sydney, Australia
There have been plenty of disturbing scenes of street unrest in the US following the death of George Floyd. Serious as these events are, it’s important to keep in perspective what markets typically do and don’t react to.
With images of buildings being set alight on our screens, you’d be forgiven for thinking this is another event that would rattle US markets.
Particularly given the poor economic background and other issues such as US/China tensions along with ongoing uncertainty as to whether coronavirus is really under control.
What we can say so far though, is that the images and scenes we’re being presented with is not enough to significantly impact US economic activity, which is similar to what we’ve seen with terrorist attacks. The 9/11 terrorist attack was unprecedented and briefly disrupted markets – but since then, subsequent terrorist attacks had less and less impact. Markets tend to look through these events, unless they are major enough to disrupt economic functioning on a broad scale.
Further, and unfortunately, the nature of the current tensions are not new to the US, so they don’t come as a huge surprise to markets. I was listening to a song by the Mamas and the Papas recently, ‘Safe in my garden,’ which says “Cops out with the megaphones/Telling people stay inside their home/Man, can't they see the world's on fire.” This song was released in the late 1960s, reminding us of what the US has seen in years past.
The biggest issue we see so far economically from this unrest is that the US government needs to get unemployment down as quickly as possible, as high unemployment is likely exacerbating social tensions and inequality. That has been compounded by COVID-19 shock, but rising inequality has been an issue in the US for some time.
For us, it’s important to recognise the detractors from economic activity versus other events – significant as they may be socially. As I always say, especially when there is a lot of uncertainty around generating lots of conflicting but invariably bad news, its critically important to turn down the noise if we want to be successful in reaching our goals when investing.
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Important notes
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