How Stocks Perform After Major Protests

Patrick Martin

Although it may not be as conspicuous on Wall Street, Main Street has been gripped by the protests and civil unrest over the death of George Floyd. All 50 states have engaged in protests against police brutality and systemic racism since late May, and the tensions have been exacerbated by U.S. President Donald Trump's threats to deploy military to contain the rallies. It’s far from appalling to claim that large news stories can act as a major influence to investor sentiment, so what could this level of unrest mean for the stock market moving forward?

To help identify a correlation between stock market performance and protests, we needed first to define what has encompassed a protest in the past. Not including the current U.S. upheaval, we identified 12 protests since the 1992 Rodney King riots that we considered "notable." Then, using data compiled by Schaeffer's Senior Quantitative Analyst Rocky White, we looked at the S&P 500 Index (SPX) returns within four time frames after the protests died down.

SPX Protest Returns

As you can see from the table above, there is a slight underperformance after a majority of these protests, but nothing eye-opening. But what is interesting is the short-term standard deviations. The one- and three-month standard deviations following major protests sit at 2.8% and 4.9%, respectively, much slimmer than the anytime one- and three-month anytime standard deviations of 4.5% and 7.3%. What this means is that the market has been less volatile than normal following these protests in the short-term or immediate aftermath, despite the six-month return showing standard deviation hurtling past the anytime returns.

SPX Individual Protests

Meanwhile, the table above breaks down the SPX returns following each of the individual protests we calculated, also looking one, three, six, and 12 months out. A look at the six-month column shows that since 2015, four of the six protests sent stocks into the red six months out. And with those four, that six-month window encompasses or runs right up to November's Election Day. Underscoring the potential choppiness six months ahead, this time-frame is the only one where the SPX's standard deviation is higher than the anytime percentage, as referenced earlier.

Narrowing in even further, since 2015, five of the six returns following protests were in the black one-month later. In simpler terms, historical trends seem to indicate the SPX is not in any danger of significant underperformance due to the protest in the coming summer months. But with Election Day looming and the politically divisive nature of these current protests, investors should brace for a potentially choppy autumn.