The 9/11 attacks on a Tuesday forced the New York Stock Exchange to close for the rest of the week in the longest shutdown since 1933. When the exchange opened the next Monday, the Dow Jones Industrial Average fell 7.1 percent while the S&P 500 declined 4.9 percent. Although these declines were big, directionally they were in keeping with market trends since March 2000, which marked the peak of the dot-com boom.
Having a better understanding of what drives long-term market returns is helpful when analyzing these external geopolitical events. Politics tends to be noisy and distracting, and while it makes for good headlines, it is typically not relevant to investing.
The more relevant questions to ask are: How do these events affect revenues and earnings? Could this event have an impact on inflation, and therefore interest rates? Last, will this damp investor sentiment and thus affect risk appetites?
Global capital markets are vast, taking in hundreds of trillions of dollars. To derail that takes more than a temporary event involving the legal status of the American president. A large part of the world’s interest in the U.S.’s stock market is the institutional support for the rule of law, and although Trump has recklessly attacked it, this institutional framework remains in place.
What about a President Mike Pence? The things the equity markets like about Trump — tax cuts, deregulation and deficit spending — are likely to continue under a Pence administration.
I suspect the markets would be just fine with that.
This column was provided by Bloomberg News.