It’s been a year since the Brexit vote in the United Kingdom, so I thought I would take a moment to reflect on the global populist movement. Aside from Brexit, the past year has brought the election of Donald Trump as U.S. president and conventional politicians battling populist challengers in the French and Dutch presidential elections. The populist upsurge is being driven by people angry about unemployment, their static or even declining incomes, and anti-immigrant sentiment. Although populism may seem as though it is slowing, I believe that there is more to come with populist challenges in Germany later this year, and in Italy, next year.
So, what has been the impact to markets after one year of global populism? From a pure market perspective, it’s been a positive 12 months for U.S. equity markets and the bull market run may not be over yet!
A different metric over the past year worth noting is low market volatility. If you would have told someone one year ago that volatility would be as low as it is in right now, they’d have probably predicted both a Brexit “remain” vote and a Clinton presidency. But, the truth of the matter is that even though President Trump brought his own brand of modern populism to the White House with his “America First” ideology, (see related article, Interpreting the facts: Technology, populism, and the economy) if Trump’s campaign promises on infrastructure spending, lower taxes, and deregulation become reality, then U.S. growth could persist or even accelerate in the coming years.
So, why has the market remained so stable despite the populist movement? Most believe it has to do with the prevailing market environment of the past five years – low interest rates, accommodative monetary policy from central banks, and strong fundamentals and actual earnings results from companies that make up the stock markets. Those macro factors have been enough for the market to shrug off a fair amount of uncertainty from the political sphere.
While the populist movement has lost a bit of steam in recent months, it’s unlikely to go away any time soon. In the coming years, policy changes and macro events will make a big difference. However, there are clear structural changes in the world economy that will also likely drive returns. The foremost of these structural factors are technology and demographics. These are structural factors that seem more predictable than the vagaries of political sentiment (populism) or the randomness of global macro events. The bottom line is that even though the populist movement may stick around, long-term savers should incorporate these structural changes into their thinking to avoid misinterpreting the facts that lay before them.
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