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3 ways civil unrest following George Floyd nationwide protests hurts the stock market

The nationwide protests following the death of George Floyd in Minneapolis have rocked an already fragile corporate America reeling from the financial losses caused by the coronavirus economic shutdown. 

The shattering of storefronts and destruction of business property in major cities including Minneapolis, New York City, Chicago, Los Angeles, and Atlanta have caused some major retailers to pull back on plans to slowly get back to normal and reopen stores.

People run out of a smoke shop with smoking instruments after breaking in as police arrive on Monday, June 1, 2020, in New York. Protests were held throughout the city over the death of George Floyd, a black man in police custody in Minneapolis who died after being restrained by police officers on Memorial Day. (AP Photo/Wong Maye-E)

Over the weekend, Target, Walmart, and Apple moved to reduce store hours and shut hundreds of stores in response to protests.

The effects of the civil unrest is a “potentially negative development for stocks,” according to RBC Capital Markets. Current headlines about mayhem, violence, and many businesses damaged or set on fire in major U.S. cities could hurt stocks because of the S&P 500’s propensity to fall steeply in reaction to negative news. 

Shattered window and door glass is scattered on the floor inside Mervis Diamond Importers in Washington, Monday, June 1, 2020, after a night of protests over the death of George Floyd. Floyd died after being restrained by Minneapolis police officers. (AP Photo/Carolyn Kaster)

For instance, RBC Capital Markets research points out that when headlines were dominated by bad news about the coronavirus and the negative economic effects of the shutdown to combat it, the S&P 500 plunged in February and March. 

In contrast, optimism surrounding the enactment of stimulus measures, the reopening of the U.S. economy, the easing of state restrictions, and positive coronavirus vaccine and treatment data fueled the market rally in late March and April.

The protests make a second wave of the coronavirus hitting U.S. economy more likely

Wall Street analysts have observed how thousands of protestors gathering over the past week have stood in stark contrast to social distancing guidelines. 

“As for COVID-19's progress, these mass gathering protests, without following social distance protocols, effectively ended ‘stay at home’ for most of the country.  Whatever ‘stay at home’ restrictions, limits on gathering size, etc, -- these ended this weekend,” wrote Tom Lee, Managing Partner and the Head of Research at Fundstrat Global Advisors.

Prior to the protests, the country saw a decline in coronavirus infections. “While we are not qualified to judge the healthcare implications of this, these large gatherings effectively cancelled all the efforts over the past 10 weeks to "shelter at home" and mitigate transmission.  So the next 2 weeks will be important to watch,” said Lee.

According to RBC, the civil unrest could impact how quickly the U.S. economy can recover. “Second wave fears could halt reopening or keep behaviour cautious,” wrote Lori Calvasina, RBC Capital Market’s head of U.S. Equity Strategy.

‘Civil unrest could pressure consumer confidence’

Consumer confidence, a key driver of stock market performance, could also be pressured by the civil unrest, according to RBC. 

With more than 40 million Americans filing for unemployment since the coronavirus shutdown, consumer confidence has taken a beating. Consumer confidence fell sharply in March and April, before improving slightly in May. “In Bloomberg’s regional weekly consumer comfort indices, the West and Northeast had seen confidence hit hardest but started to stabilize recently,” wrote Calvasina.

Bloomberg Weekly US Consumer Comfort Index by Region