United Airlines shares took a beating last week, and everyone is blaming chief executive Oscar Munoz for being so slow to apologise after footage emerged of a 69-year-old passenger being forcibly dragged off the overbooked plane.
It turns out that everyone is right – sincere apologies are vital in such instances, according to a 2015 study, Saving Face. Share prices suffer less damage when a chief executive issues what appears to be a sincere apology, the researchers found. In contrast, smiling while apologising is a no-no; a company's share price is more likely to perform more poorly in the following days and months.
It’s not just a case of not smiling – chief executives should be mindful of “upper face happiness” as “subtle emotion expressions are detected by stakeholders, signal insincerity, and have important consequences for organisations”.
It’s fair to assume that Mr Munoz, who initially protested in an internal email to staff that the “disruptive and belligerent” passenger had been “politely asked” to leave the flight, had not read the study.
Are investors anxious… or bored?
Is it possible to be nervous and really, really bored at the same time?
"Haven assets rally as nerves hit US markets", headlined the Financial Times last Tuesday. The following day, the FT reported how US stocks "dipped again", highlighting "simmering investor nervousness", adding that the Vix, or fear index, had "surged" to its highest level since last November's presidential election.
Some context: this was during a spell in which the S&P 500 had not closed higher or lower by 0.35 per cent for 10 consecutive days – a level of inertia unseen since 1968, according to LPL Research. And while the Vix is indeed at its highest level since November, the last six months have been extraordinarily calm, with the index remaining well below historical norms.
The FT is not a bastion of sensationalism; indeed, it's a sedate, level-headed publication. As this column often points out, however, market summaries almost invariably make too much of the slightest moves, investing them with a significance that is rarely deserved.
This may largely reflect an understandable desire to produce lively copy, but it can mislead investors. The quietest stock market in half a century cannot possibly be an unduly nervous one.
Will political risk shake markets?
Markets have a reputation for being panicky, for taking a “sell first, ask questions later” approach to uncertainty. These days, however, bouts of fear are increasingly short-lived affairs.
Stock futures sold off following the recent US airstrike on Syria, only to recover within hours. Another sell-off then ensued, following disappointing jobs data; again, the recovery was almost immediate. On the same day, Russia reacted angrily to the US attacks and news emerged of a terrorist attack in Sweden. Despite all that, stocks closed only fractionally lower.
Last week, it was the turn of the dollar, which sank after Donald Trump warned it was "getting too strong". Again, it quickly rebounded.
In the above instances, investors quickly deemed the headlines to be worse than the reality. Fundamental considerations aside, investors have become conditioned to see every dip – no matter how minor – as buying opportunities. This is especially true of political risk, with investors remembering that markets quickly shrugged off Brexit, Trump and the Italian referendum results in 2016.
Political risk will be on the agenda over the next few weeks, what with the first round of the French presidential election taking place on April 23rd, the potential risk of a US government shutdown by the end of the month, and continued sabre-rattling over Syria. Sell-offs might ensue, but barring seriously unexpected developments, investor nonchalance means any dips will likely continue to be short-lived and shallow.
Market euphoria: can you afford to miss it?
Wall Street's major strategists are largely cautious in their outlook, the consensus being the S&P 500 will end the year only slightly higher than it is today. Morgan Stanley is more forthcoming – the bank's chief strategist, Michael Wilson, estimates the index could gain almost 30 per cent over the following year.
Wilson reckons a classic late-cycle spurt – “euphoria” – is coming. After “eight long years”, both Wall and Main Street are “finally starting to feel better about the future”; financial conditions are “exceptionally loose”; market technicals are “in very good shape”; the US cyclical upturn is tied not to President Trump but to the global business cycle.
Sceptics shouldn’t automatically dismiss such sentiments. Wilson is right to note that the best returns frequently occur in the latter stages of bull markets – “think 1999 or 2006-07” – when irrational exuberance often takes hold.
However, his conclusion – “in a low-return world, investors cannot afford to miss it” – is erroneous. After all, think of the carnage that followed in 2000-02 and 2007-09. For many investors, missing out on a late-stage rally is painful but not nearly as painful as suffering another boom-bust cycle.
