Waking Up to Growing Unrest

New York City woke up to the sound of helicopters and sirens. Multiple dumpsters and police cars were set ablaze just a block from my home.

After the killings of George Floyd in Minneapolis, Breonna Taylor in Louisville and Ahmaud Arbery in South Georgia, here’s what it looked like as people across the country protested racism and police brutality in America, and what it was like as tear gas and stun grenades were used to counter those setting structures on fire in Washington, D.C. And here’s what it looked like across the globe as people from Berlin to Tehran protested in support.

Back on Wall Street, starting on Friday, executives from the largest banks began to speak to their own employees -- many in New York who would also be waking up to sirens. The ones who have left will come back to a city that will be different.

Citigroup CFO Mark Mason:

“Despite the progress the United States has made, Black Americans are too often denied basic privileges that others take for granted. I am not talking about the privileges of wealth, education or job opportunities. I’m talking about fundamental human and civil rights and the dignity and respect that comes with them. I’m talking about something as mundane as going for a jog.”

JPMorgan’s Jamie Dimon:

“Let us be clear -- we are watching, listening and want every single one of you to know we are committed to fighting against racism and discrimination wherever and however it exists.”

JPMorgan has been working to change its policies to clamp down on racism after a New York Times story late last year described discrimination, while my colleague Max Abelson has showed through the data that the largest banks have struggled with stark inequality over the past decade.

As the unrest mounted, stocks barely budged early Monday before the market opened as investors shrugged off what these protests could mean for the U.S. moving forward.

But does the stock market matter?

This all comes as the unemployment numbers show a reality for most Americans that’s a far cry from investor gains. “History shows there is simply no correlation between social/political turmoil and U.S. stock market returns,” said DataTrek’s Nick Colas in a note Monday morning. Still, “If protests or political spillover start to hurt consumer confidence, that would spell lower stocks prices for a longer period.”

The S&P 500 is up about 35% from its March low. Yet bankruptcies have been sweeping the country in the fastest pace in more than a decade -- with everything from food chains to big-name retailers and gyms facing insolvency.

The optimists can point to the first truth to say that things could start to get better. Yet many others contend that the stock market has nothing to do with our recovery. Nobel laureate Robert Shiller told my colleagues that there’s been a very weak link between stocks and the economy.

The five largest technology firms account for almost 20% of the S&P 500. Yet “around 45% of U.S. GDP is generated by small businesses employing fewer than 500 people,” Neuberger Berman’s Joe Amato said in a note last month. Meanwhile, JPMorgan economist David Kelly told clients last week that unemployment could remain above 10% through the end of next year. Amato adds:

“It’s increasingly clear that recovery is likely to be long, grinding and incomplete, and shine a harsh light on inequalities of income and access to health care and educational opportunities. At the very least, in the face of that struggle, society is likely to demand that a larger share of economic growth accrue to labor rather than capital. At worst, those growing inequalities threaten outright civil unrest.”

In the near term, large banks are benefiting from a surge in trading gains and maybe even another month of record debt underwriting. But bankruptcies and downgrades will cause the firms problems: They’ll face issues when borrowers begin to default and consumers can’t pay their debts.

More to come. This three-month span is turning out to be the most significant in my generation’s history, and I’d love your opinions on what to keep an eye on. Tips and ideas welcome at [email protected]. -- Sonali