Stocks paused from their post-election rally last week as the Dow Jones Industrial Average gained a paltry 18.28 points, or 0.1%, to end the week at 19,170.42. The S&P 500 fell 1% to 2,191.96, while the Nasdaq Composite Index fell 2.65% to 5,255.65. Further gains or losses may be less dependent on news from Trump Tower and more responsive to Italian voters’ rejection of constitutional reformon Sunday, Dec. 4.
The ‘no’ vote in Italy bodes poorly for Italian banks, which are insolvent and in need of government support, and is potentially a movement toward exiting the European Union. Despite a wider than expected margin of defeat (‘no’ votes were nearly 60% of the total), markets surprised in Europe and the United States by rallying. I have to confess that while I expected the ‘no’ vote, I did not expect markets to greet the result by rallying and am scratching my head at the response.
Italian voters are the latest to embrace populism and reject the elites governing their country. Following the Brexit vote and Donald Trump’s victory, Italians rejected much-needed constitutional reforms that could improve governance and chances for economic reform because they were focused on rejecting the heavy hand of the European Union and the straitjacket of the single currency that is suffocating their economy.
This post was published at Wall Street Examiner on December 8, 2016.