Americans have been rattled by the biggest civil uprisings in at least a generation, with violent clashes forcing a recognition of a long history of racial inequality. So far, that recognition has had little effect on the US’s $30tn-plus stock market.
Portfolio managers who direct the investment of hundreds of billions of dollars have looked beyond the civil disturbances sparked by the killing of George Floyd, an unarmed black man, by a white police officer, even as protests increase the risk of another wave of coronavirus infections.
As of yet, the protests have not meaningfully impacted forecasts for economic growth, which had already taken a sharp haircut as states and municipalities across the country locked down to curtail the spread of the virus, investors said.
Civil unrest in the past has not spelt calamity for US markets, analysts said, with several pointing to the gains notched by the S&P 500 and Dow Jones Industrial Average in 1968 — when the assassination of Martin Luther King galvanised the country — as proof of its resilience. In that year, when riots were seen in Washington, Chicago and Baltimore, US markets still advanced. That same year, a strain of influenza would reach pandemic proportions, killing about 100,000 Americans.
But unlike 1968, another factor is at play to lift stocks in 2020: unprecedented intervention by the Federal Reserve to support the economy through the pandemic. The US central bank has injected nearly $3tn into financial markets since the end of February, buoying stocks and overshadowing other market forces, investors said.
“All the negatives are more than embedded in the markets,” said Margie Patel, a senior portfolio manager at Wells Fargo Asset Management. “You have had trillions of dollars come into financial markets. Regardless of the fundamentals, that is [now] the biggest fundamental.”
The S&P 500, which was roughly 0.4 per cent higher on Monday, is down only 5.4 per cent this year. Since the Fed announced it would unleash its full force to support the US economy on March 23, stocks have gained nearly 40 per cent.
That surge has been hard for many investors to reconcile, given the deep economic damage Covid-19 has caused. Mohamed El-Erian, Allianz’s chief economic adviser, said the subdued market reaction to the protests was “consistent with the very sharp disconnect between markets and the economy”.
The scenes from Los Angeles, Minneapolis, and other cities across the US where thousands of Americans are protesting, as well as the deploying of National Guard troops to quell the gatherings, have nonetheless proven jarring for fund managers, as it has for millions of Americans.
“This country is more divided than it has been in many, many years, and that is a tragedy,” said David Kelly, the global chief strategist at JPMorgan Chase Asset Management. “But when you look at the market, you can argue the market depends on the fortunes of many companies who will not be greatly affected by the demonstrations in downtown cities.”
Richard McGuire, a strategist at Rabobank in London, added that the market seemed “determined, if not entirely hell bent, on looking through the myriad negative headwinds faced by the global economy at present.”
The question on the minds of several investors was what the second-order effects of the protests would be, including the fear that demonstrations could lead to an uptick in coronavirus cases given how close people are packed together. “It’s too soon to tell”, Ms Patel said.