Every morning, while we watch TV or read the news on our phones, media outlets report the stock market's performance. A link often appears between this performance and the day's main events. It would appear logical therefore that the daily news act as a key trigger for company value variations.
However, this view is fairly superficial, through its overlooking of company financials amongst other inaccuracies. Thus, we could ask ourselves whether there is any rationale behind linking stock prices to daily news. There is, but further explanation is needed. Investors sell their stocks when they believe that events will affect the company's growth or generate uncertainties about previous valuations. Evidence shows that tragic events - such as 9/11 - have triggered massive short-term losses, all quickly recouped in the following period. A similar example was the overreaction of markets following COVID-19. Similar to 9/11, markets managed to recoup early losses.
Simply put, although market operators are often immediately shocked by an event, they may not have assessed the consequences correctly. This behaviour generally reflects knee-jerk, irrational evaluations over the event’s implications for their investment. Yet, events that trigger market reactions are not all equal. A terrorist attack, a trade war escalation, or an election results are examples of such events. Nevertheless, these events - despite being all linked to the geopolitical and political world - vary in predictability and concretisation.
In this series of articles, we will try to make sense of how different political and geopolitical evolutions may affect investments in the short and medium-long term. Those analyses will be based on literature and reflect on historical cases.