The rebound in the stock market was another example of rationality substituting panic. Analysts point out that few American companies actually have substantial business links with Italy. The DJIA or Dow Jones Industrial Index went up 1.26 percent or 306.33 points to end at 24,667.78. The Nasdaq composite went north by 0.9 percent. The S&P 500 finally stopped up by 1.27 percent. The markets went up after a selloff on May 28. The reason is concerns about the political uncertainty of Italy.
Analysts have put a number of reasons for the resurgence of the stock market. They point out that Italians want solvent and competitive banks along with a better government. They are also tired of the strong euro. The strength of the European currency has hit Italian tourism. Italians want their own currency back. It is to be mentioned in this context that the Wall Street is located in the United States and not in Rome. It follows that the stock markets were oversold.
Irrationality has blinded many investors to the fact that a robust economy means expensive stocks. The healthy US economy ensures that investors get the best returns from some really great US companies. Most of such business concerns do their business inside the United States. It was a huge mistake to sell these stocks as the state of Italy will have no effect on such companies. It also helped that America has excellent natural resources. The latter is also spread out- albeit unevenly- throughout the country.
Easier to do business in
The United States offers businesses a much easier regulatory market compared to other developed and also developing nations. The Trump administration has slashed a number of regulations. It has taken a hands-off approach when it comes to enforcing rules it cannot wish away. The United States has now become a more pro-business country. It is to be noted that American banks are not like Italian banks. The only similarity is that both systems involve the requirement of capital. Other than this, similarities are few and far between. Most Italian banks are undercapitalized. The majority of American banks are overcapitalized.
The rebound of May 30 shows that the US stock markets must not mirror its European counterparts. New York is not Rome and it is not present in Italy. Investors must understand that it is not a good idea to sell off stocks simply because Europeans have done so.