The financial markets seems to have factored in the civil unrest in the US for the time being, with benchmark equity indices going up, but the growing social volatility across the country could eventually take a toll on businesses and bourses around the world, says Ed Harrison.
According to Harrison, the managing editor of Real Vision Finance, a one-day localised unrest in the US has no significance, but there’s a global solidarity (over George Floyd’s death) and that could have a significant impact on the economic performances of America and the world.
To corroborate his point in a Real Vision podcast discussion with colleague Ash Bennington, Harrison drew a historical parallel to compare with the current scenario in the US—that of 1968 social unrest, which had triggered a bear market in subsequent years across the world.
“The thing that I find the most interesting, actually, is the 1968 parallel because, for me, that’s where social unrest, I look at, as being a marker, a sign of the top of the market in terms of the economy. So if you think back to the bear market, secular bear market, a lot of people started in 1968. The market actually did go up after the protests and the riots in ’68. It ended the year up.
“Once we get into a real opening, which will be September, October, then I think things will be quite a bit different. And then we’ll be able to actually see whether the market is overpriced and how it reacts in real time”
— Ed Harrison
“But that was really the beginning of a very long secular bear market. Some people mark it at 1966. But over that time span, the markets traded pretty much sideways while inflation was ravaging your nest egg.
“And so it was a brutal bear market on an inflation-adjusted basis for most people, people losing 50%, 60%, and I think at points in places like Ireland, when I looked at the indices in the 1970s, 80% and 90%. So what we’re seeing, or what we saw in 1968 was that, that era climaxed. And the ’68 riots, the ’68 protests, that marked an apogee and the beginning of a secular bear market,” he said.
Both Bennington and Harrison concurred that there’s a consensus on certain degree of volatility in the financial markets due to Covid-19 but the real data would emerge from quarter 3 of this fiscal.
“At this point, I think that we really just don’t know. For instance, the Q2 numbers for GDP in the United States 30% down, 40% down year over year. That’s a big difference. And we have that wide dispersion in terms of what people are talking about. So even in the near term you have a certain degree of uncertainty. You have that dispersion. But obviously you have the consensus.
“And if you beat consensus, then the market rallies on that. That dynamic is positive, especially during this reopening period, because you’re bottoming in terms of economic data. But once we get into a real opening, which will be September, October, then I think things will be quite a bit different. And then we’ll be able to actually see whether the market is overpriced and how it reacts in real time. And those are always the fun months of the year, September and October,” Harrison said.
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