Investing influenced by politics: Is this the new normal?
“As we see now, just a tweet can move markets dramatically.”
Many years ago, investing was primarily a function of trends, growth and fundamentals of finance, and politics had very little to do with an investor’s outcome. Policies always played a part in some way, but they were more of a road map of consistency in the flow of economics.
But in the last couple of decades, politics has become a bigger part of the analytical side of investing fundamentals. Let’s take a look at a specific industry, pharmaceuticals, to illustrate the effect of politics versus policy since pharma is affected by both sides of this coin.
When I was first coming into the investment industry, blockbuster drugs were all the rage. Not only were they making billions and supposedly helping many, the stocks were also paying dividends—and were the darlings of Wall Street. As time moved on, though, drug prices started to become a political football, and now pharma companies have become some of the most hated firms in the world. Politicians threaten their existence with talk of regulatory controls on pricing, as well as other possible regulations. Fringe groups have created conspiracy theories galore and claim a belief that pharma is the evil of all evils in the world.
As a matter of contention during the 2016 political campaign, this talk helped drive stock prices down dramatically in the sector. Fundamentally, pharma has had government intervention and control over approvals and patents since as far back as 1906, when the U.S. Food and Drug Administration was created. Interestingly one of the biggest problems in the structure of the industry today is the intervention and rules created by the government in the first place. Now, I am not someone who defends the bad practices of any industry, but I am also not hypocritical. Companies do what we all do: play the hand that the government’s rules and laws deal us.
In this day and age, with social media and 24/7 news, the loudest voices, including those of politicians, can make enemies out of anyone. Specifically, when it comes to social media and the mob mentality, businesses are getting abused at the highest levels. We see boycotts over any issue with which said parties disagree. We see CEOs lose their jobs over opinions and companies attacked, not over the quality of their products or the way they treat their employees but for any issue deemed negative toward even the smallest group of people.
As the government has gotten bigger and bigger and more involved in business, we see threats that could destroy industries once considered bedrocks of our society. As we see now, just a tweet can move markets dramatically. And if we look at all the movements against retailers, Wall Street banks, and so on, you can see that a lot of division and hatred can spread quickly and become quite a detriment to the creation of a solid business in our economy.
All this taken together is very unsettling to investors who continue to approach markets with those trends, growth and fundamentals of finance—mentioned at the beginning of this article—in mind. But all investors need to realize that the political shifts and moves are no longer the same. And if we ask ourselves, “Is this the new normal?” unfortunately, the answer is yes!