Impeached and withdrawn withdrawal extensions: when the markets became confused

The US President has been impeached, the UK is set to leave the EU. Some very big changes are afoot, and the markets just don’t have a clue.

Article updated: 19 December 2019 10:00am Author: Michael Baxter


When it became clear that the Conservative Party was set to win the 2019 General Election, the pound shot up in value. A few days later it fell sharply. It fell on news that the Prime Minister, Boris Johnson, wants to introduce a clause to the Brexit bill to stop an extension to the UK’s withdrawal agreement with the EU in a year’s time, thereby increasing the odds of a hard Brexit after-all.

The pound is doing a passable impersonation of a yo-yo.

When the President of the United States officially became an impeached president, the markets seemed indifferent.

All around there is chaos but the markets are as steady as a ship. The VIX index, a measure of volatility of the S&P 500, has risen a tad over the last couple of years, but only because two years ago the index kept setting new all time lows. The VIX remains subdued, meaning volatility is low.

It is this disconnect between what the markets are saying and what any sensible reading of the social world might suggest, that I find most perplexing.

Of course, the corporate world seems unperturbed. Look at corporate earnings, at dividends, look at the ratio of dividend yields to interest rates and all looks good — or at least, okay. As I have argued here enough times, despite the frequency with which S&P 500 hits new records, the various ratios of earnings to valuations are not at scary levels, nothing like the levels seen before the dotcom crash, for example. Okay, maybe US stocks look a little elevated, but the FTSE 100, looks fairly valued to me, if not maybe on the cheap side.

It seems the corporate world is robust, stock markets may not be in rude health, but neither are their valuations vulgar.

Globally, debt levels are high, but then with interest rates so low, maybe debts are affordable.

Yet, look at politics, look at the shift towards the right, at a hint of xenophobia, not just in the UK, but worldwide, looks at the divisions. I see this massive disconnect.

This is not what worries me, however.

Technology is set to see extraordinarily rapid change. The decade which is set to begin will be one of technology revolution. The world will leave the 2020s looking very different. The opportunity for investors will be immense. Savvy investors, who can grasp the changes that are afoot could make a fortune.

Amazon shares rose 18-fold in the decade that is set to close, I believe that the next decade will see many companies enjoy similar success. Aramco may be the most valuable company in he world right now, but it won’t be long before techs regain their position at the top of the market cap league.

This is very exciting.

The social change is more worrying, though. We have to find a way to ensure the fruits of innovation trickle down into boosting median wages, we have to do more to eliminate poverty — a true scandal in the technology age, but which tellingly is an especially big problem in the home of tech, San Francisco. If we don’t, the social discontent will erupt into something that will erode wealth faster than technology can create it.

At the moment, the markets seem focused on the positive side of technology. Let’s hope they are right to do that. Dickens wrote about the social issues that coincided with the great period of innovation in the second half of the 19th Century. We are entering a time of innovation which is analogous to that period, but only time will tell if we will see the best of times or the worst of times.

These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

Michael Baxter portrait photo
Michael Baxter

Economics Commentator

Michael is an economics, investment and technology writer, known for his entertaining style. He has previously been a full-time investor, founder of a technology company which was floated on the NASDAQ, and a director of a PR company specialising in IT.

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