Italian Stocks Won’t Get a Boost From the Election
As Italians voted over the weekend, polls highlighted how divided the country was.
The country is split between populists with anti-migrant views, euro-skeptics and a centrist coalition led by an octogenarian who isn’t eligible to hold office until next year because of a tax evasion conviction.
Problems extend beyond the country’s political parties. Economic growth is lagging. Unemployment is high.
These are reasons the country’s benchmark stock market index, the Milan S&P/MIB Index, remains nearly 50% below its 2007 high.
The stock market is an economic indicator. New highs in stocks are associated with a growing economy. A price pattern like the one seen in Italy is associated with stagnation.
This stock price pattern also explains the election results.
Economic stagnation explains the rise of political extremists. Citizens often want change when the economy is bad.
They don’t think much about what kind of change they want. They just want the economy to improve.
This leads to deep splits in the electorate. In large economies, this can lead to problems affecting an entire continent.
Italy is the fourth-largest economy in Europe. It’s also at the center of Europe’s immigration crisis. An inability to produce jobs is a crisis for the country, and for all of Europe.
The Italian stock market’s failure to make news highs tells us to expect more problems in the country no matter who leads the next coalition government.
One way to grow the country would be to boost exports. That’s unlikely given the recent news about tariffs. This indicates social problems will increase in Italy, and Europe.
Michael Carr, CMT
Editor, Peak Velocity Trader