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Can Occupy Wall Street Affect the Market?

|Includes:FAZ, SPDR S&P 500 Trust ETF (SPY)

Over the past week, many financial websites have been writing articles about the Occupy Wall Street protests. At least one article about the movement seems to be present on Google Finance at all times and it is starting to become a hot topic at the water cooler in offices across the country. Although Occupy Wall Street has not had any perceived effects on the stock market yet, I believe that it is important for investors to look at what this group is doing in order to evaluate the market from all angles. With labor unions joining the protests, Occupy Wall Street can become very serious very soon.

Most people will agree that the current protests do not hold a lot of weight. Protesters have been sighted withdrawing money at ATM machines and many of the protesters are unemployed, or have a misunderstanding of how the economy works. One protester interviewed by a reporter didn’t even know who Warren Buffett is. The biggest concern that corporate executives currently have with Occupy Wall Street is the physical safety of them and their employees since protesters have shown that they are not afraid to go to jail. However, as more protests begin in cities across the country, protesters will become more informed and hold more weight on the market.

Although Occupy Wall Street consists of people who have a low impact on the GDP and the market, they are still voters. The movement’s best chance to impact the stock market is to start getting political backing, much like the Tea Party received after it started out as a joke. If “Occupy Wall Street” representatives get elected to office, we can start seeing legislation that raises corporate taxes and increases in government regulations which could have strong negative effects on the market. If protestors get their way and the US Government does something like ban fracking, it can have adverse effects of several stocks.

I don’t think that Occupy Wall Street will have any effect on the market for several months, and that is assuming the movement can continue to grow and have the organization and financial backing it needs to survive. Remember that America is a democracy, and if enough citizens are vocal about corporate greed and financial inequality, the Democrats may continue to push for higher corporate taxes. This could have a strong negative effect on the stock market as a whole, with extra emphasis on the financial sector. Going short SPY would be a good way for investors to protect themselves against market risk of Occupy Wall Street. Going long FAZ would be a good way for investors to protect themselves against Occupy Wall Street’s potential effects on the financial sector. However, I think it is a little premature for investors to protect themselves against Occupy Wall Street, but it is still important to know that the movement can have a potentially negative effect on many portfolios.

My personal belief is that wealthy individuals should have increased taxes and that corporate taxes should be lowered. Taxing wealthy individuals more can provide an estimated $700 billion over 10 years, which doesn’t take a huge chunk out of our deficit, but is a good start. I believe that lowering corporate taxes will cause more companies that operate in the United States to base themselves in the United States, which should increase tax revenue in the long term. There is a great piece on 60 Minutes about US corporate taxes.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: I am long a Vanguard Total Stock Market Index Mutual FundI am a moderate
Stocks: SPY, FAZ