Why do global equity markets ignore political shocks like Brexit, President Trump’s election or the news that Angela Merkel failed to form a government in Germany? There are plenty of good reasons, actually, which we review below.
News that German Chancellor Angela Merkel failed to form a new government was the big shock of the day. It is unclear if the country will have a minority coalition or call fresh snap elections. The New York Times quoted a Der Spiegel deputy bureau head as saying ‘This is Germany’s Brexit moment, its Trump moment’.
Capital markets agreed with the Trump/Brexit comparison, sending the DAX up 0.5% on the day. Every other major European bourse closed in the green as well. As did the US.
All of this got us thinking (again) about why stock markets ignore politics and government when it comes to ‘Crisis moments’. It wasn’t too hard to come up with several explanations.
Reason #1: The Brexit vote and Trump election are fresh in investors’ minds, and they feel they know the ‘Crisis playbook’ well at this point. Buy any notionally negative political headline first, look for the silver linings later. Muscle memory is a powerful behavioral force.
This post was published at Zero Hedge on Nov 21, 2017.