The G7 Effect On Stocks. It’s Big.


May 27, 2016, 11:40am EST

As we head into the Memorial Day weekend, we want to talk today about the G7 meeting that took place this week Japan, and how these meetings tend to effect financial markets (namely the key barometer for global markets in this environment, U.S. stocks).  It’s a big effect.

If we look back at the past seven annual meetings of world leaders, there is clearly a direct correlation between their messaging and the resulting performance of stocks.

For context, we’re talking about a period, from 2009-present, that has been driven by intervention and careful confidence massaging by global policymakers.  So it shouldn’t be surprising that coming out of these meetings, post-Lehman, things happen.

Let’s take a look at the chart of the S&P 500 and highlight the spots where a G7 meeting wrapped up (note:  this was actually the G8 prior to 2014, when Russia was ousted from the group).

Source: Reuters, Billionaire’s Portfolio

If you bought stocks following the meeting in Italy, in 2009, you’ve made a lot of money.  The next year, in Canada, same result.  Of course, the world was in very bad shape at the time, and the messaging from both meetings was unambiguously focused on the economy, restoring stability and growth.

By May of 2011, the message was that the recovery was becoming “self sustaining” (a positive tone).  Stocks didn’t push higher, and then fell back later in the year when the European debt crisis spread to Italy, Spain and France.

In 2012, the meeting was hosted in the Washington D.C.  The European debt crisis was at peak crisis.  Greece exiting the euro was on the table and it was stoking fear that Italy and Spain were next to crumble and destroy the European Monetary Union.  The first line of the communiqué was about Europe and the need for economic stimulus.  Stocks went higher and two months later, ECB head Mario Draghi further fueled stocks by stepping in and averting disaster in Europe by saying they would do “whatever it takes” to save the euro.

In 2013, G7 leaders, plus Russia met in the UK.  The second statement in the 33 page communiqué focused on economic uncertainty and promoting growth and jobs. Stocks went higher.

In 2014, the meeting was hosted by the European Union.  Russia had been ousted earlier in the year from the G8 for break of international law for its actions in Ukraine. The primary focus was on Russia and promoting freedom and democracy.  The tone on the economy was somewhat upbeat. Stocks went up for a few weeks and then ultimately fell back later in the year in a sharp correction/then sharp recovery.

In 2015, Germany hosted.  The communiqué led with a focus on the refugee crisis.  Stocks followed a similar path to 2014.

Finally, today the 2016 meetings concluded in Japan.  The focus was on the economy.  “Global growth remains moderate and below potential, while risks of weak growth persist.”  And they discuss rising geo-political conflicts as a further burden on the global economy.

So if we look back at these meetings, clearly there is a G7 (G8) effect. If the headline focus is the economy, it tends to be very good for stocks.

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