3 reasons why civil unrest is bad for stocks: RBC

Yahoo Finance’s Sibile Marcellus joins Kristin Myers to break down RBC U.S. Equity's 3 major reasons why civil unrest is bad for stocks.

Video Transcript

KRISTIN MYERS: So I want to continue the conversation that we've been having a little bit about protests and their potential impact on the markets. A new note from RBC says that it might not look too good. Well, we have Yahoo Finance's Sibile Marcellus here to break down all of that information. Sibile?

SIBILE MARCELLUS: That's right. So the national protests following the death of George Floyd in Minneapolis have really rocked an already fragile corporate America that's reeling from the financial losses from the coronavirus pandemic. And what we're seeing is that the shattering of storefronts and destruction of business property has caused some major retailers to pull back on their efforts to get business back to normal. So what we're seeing is that major retailers, such as Walmart, Target, and Apple, are closing down hundreds of stores and reducing store hours.

Now according to new research by RBC Capital Markets, the effects of the civil unrest could be a potentially negative development for stocks for three reasons. Number one, the market already has a propensity to react to negative news headlines. We've seen that with the S&P 500 falling steeply in February and March in reaction to negative news around the coronavirus pandemic, and also the economic impact of the shutdown. Then we saw in late March and April the stock market rally with optimism on several different fronts having to do with the vaccine and treatment trial-- some positive news coming out of there-- stimulus measures being implemented, and also states reopening their economies.

Now number two, here's another reason why the civil unrest could hurt the stock market, is because the protests could trigger a second wave of the coronavirus pandemic. If that were to happen, according to RBC Capital Markets, that could cause the US economy's slow reopening to stop entirely. And that could have devastating economic consequences.

The third impact this could have, the third reason that RBC Capital Markets says the civil unrest could impact the stock market, is consumer confidence. It fell steeply in March and April, started to pick up in May. But because of the unrest, it may fall back. And also we're seeing that when it comes to consumer-- I'm sorry, corporate sentiment and small business confidence, those could also fall.

KRISTIN MYERS: All right, thanks so much, Sibile, for some of that information.