• The London Finance Journal

Non-farm payrolls do not excuse the silence of the market.

Despite the continued presence of COVID-19, and the race tensions across the U.S., the markets have continued to rally. On Friday the 5th of June, the NASDAQ hit at all-time highs again, and the S&P is only 1.1% down year to date. The stock market crash has almost completely reversed; the million-dollar question is why?

The situation that caused the market crash has far from ended. Arguably the U.S. is in even worse of a state than it was in mid-March when record falls occurred. Coronavirus is far from over; there are still 14 states with r rates above one. The worldwide reaction to the murder of George Floyd by a Minneapolis police officer should have rocked markets as well due to the resulting instability. These crowds have gathered with a worthwhile purpose, but they may be contributing to a second wave. The U.S. is not united or secure right now.

The non-farm payroll announcement on Friday shocked the markets into a bullish fervour, as 2.5 million jobs were added in May befuddling analysts who were expecting millions of job losses. Some market watchers have claimed that this supports further bullishness and explains the recent gains. But one positive data point does not ensure a stable and growing economy. Twenty million people are still unemployed in the U.S. Yet, we are now at levels in the NASDAQ last seen when the unemployment rate was 3.5%, while it is currently at 13.3%. Maybe these job gains support bullish sentiment, but they cannot explain a test of all-time highs. Whether this rally is driven by fear of missing out or optimism, it does not matter. The stock market is looking out of touch and heartless, this reflects poorly on investors. This cannot just blow over.

These tensions will affect companies; those who adopt a supportive social stance will attract younger and more diverse customers. Ben and Jerry’s are an excellent example of this as they focus on social change alongside profits, despite being owned by a large corporation. Other companies that refuse to comment or those that speak out against protests may suffer. I may not be protestors along with others, but the statements and actions of companies will affect not only my purchasing decisions but also my future career. Reactions matter and those that react well will be rewarded.

This may not be the moment that the U.S. boils over, the current tensions may dissipate with time. If it does, then the stock markets optimism may look understandable. However, these issues cannot be ignored or forced into obscurity; if they are not solved, they will reappear. The U.S. needs a leader who is sensitive to these problems and is advocating for change. If it was not already clear, the past few weeks have demonstrated that President Trump is not the leader that this situation requires. The tear-gassing of peaceful protestors so he could have a staged photoshoot outside of St John’s Church in Washington D.C. is enough to show his lack of sympathy regarding these issues. The fact that he has now denied claims of tear gas use rather than apologising for the incident makes his stance clear. Another example occurred on Friday when Trump declared that the 2.5 million jobs created in May made it a great day for George Floyd. This completely ignores that fact that black unemployment in the U.S. remains over 4% higher than white unemployment, and it was a tactless and out of touch statement.

Fear of missing out has been decreed the cause of this rally, but it may go deeper than that. Even before the death of George Floyd, racial tensions were higher due to the susceptibility of minorities to the virus and the loss of jobs mostly held by these groups. The stock market has a history of rallying at racially tense times, completely ignoring these issues.

The week after the assassination of Martin Luther King Jr the S&P rose despite country wide protests. U.S. markets also rose when police officers were found not guilty of assaulting Rodney King in Los Angeles in the ’90s leading to rioting in L.A., despite video evidence. Since the murder of George Floyd, the S&P is up 7%. These are not the only examples. This proves that the market has a history of ignoring racial tensions. I believe that this is because minorities are not investors. 2016 data suggests that only 30% of all black families in the U.S. own stocks, compared to 60% of white families. While 83% of all U.S. stocks are held by the wealthiest 10% of households in the U.S. Data from 2013 suggests that 72% of U.S. millionaires were white, whereas only 7% were black, this would not have substantially changed. Black families do not own a significant portion of equities, and as a result, they do not influence the markets with their reaction to these events.

Fed Data from 2016 further highlights the racial inequality in the U.S., as it found that the mean and median net worth of black families was less than 15% of white families. This makes it clear that stocks are owned almost completely by white, wealthy families; this may explain why the market completely ignores racial tensions and protests. These investors may not feel any impact from these events and in some mays may be scared to sell in these situations. To sell would be admitting that these tensions have become problematic and need solving. Instead, these investors appear to be crossing their fingers and praying that this all goes away as it has done before. These families benefit from the status quo, and most have no desire to change it.

This may work this time, but at some point, it won’t. Tensions will continue until the problem is solved, and to be clear racial treatment is far from the only issue that the U.S. and the wider world faces. The U.S. is not the only country that faces these issues. In the U.K., black families are most likely to have an income of under £400 a week and are simultaneously the least likely to earn over £1000 a week. As a person who has benefitted from white privilege in the UK it is obvious to me that things must change here. However, the U.S. will remain the centre of these discussions, due to the acts of police and protester violence coupled with a long inescapable history of racism.

Legislators and business leaders across the world need to step up and solve these issues, whether through reparations, positive discrimination or a number of other options. If nothing is done then these problems will reappear further down the line. Not only would this be morally and ethically wrong but it is bad for equities. This problem will boil over whether it be this year or in the future. You cannot expect to have your boot on a races throat, both literally and figuratively, and never be prepared for your world to blow up, history tells us this. From the Indian revolts under the British Empire, to the Helot’s various rebellions against the Spartans, and even the American revolution. If we do not learn from these events, we are doomed to repeat them and in our modern world we should do better.

Whatever form this explosion takes, it will undoubtably affect markets. It does not even have to be successful to do this. Stocks may be currently ignoring racial problems in the U.S. and elsewhere, but one day in the future the markets and investors will be forced to reassess the status quo.

It is obvious that markets would benefit from racial equality, as nearly 80% of venture backed companies are run by white founders, but ideas and skills are not limited by race. We all need to realize that a racially equal world would lead to better companies and higher markets. Until these parties help achieve this tensions will continue and the world will fall short of its potential.

By Charles Heighton


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