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Following the Italy referendum results on Dec. 4, markets mostly – and surprisingly – reacted positively to the Italian voters' shutdown of constitutional reform.
Shortly after the opening bell on Monday, the Dow Jones Industrial Average soared to an all-time high of 19,249. The S&P 500 also gained about 0.5%, while the Nasdaq gained 0.68%.
Predictably, the one exception to this market surge was Italy's markets.
Investors dumped Italian bank stocks in trading after the vote. Many may have been worried that political instability could affect these banks' ability to raise capital. Year to date, Italian bank stocks as a group are down 50%, according to The Wall Street Journal.
Investors also unloaded Italian debt, causing Italy's 10-year note to rise to 2.06% Monday intraday. The note's spread against the German 10-year note widened to a two-year high, which suggests rising fears over the integrity of the Eurozone, according to The Wall Street Journal.
As for U.S. markets, there's one reason they're rising today following the "Quitaly" vote, despite many not expecting such a strong rally…
The One Reason Markets Are Up After the Italy Referendum Results
During the Brexit vote back in June, investors weren't expecting the "leave" camp to win. In fact, all major polls at the time pointed to a "remain" camp victory. That's what caused the Dow to fall 870 points from 18,011 to 17,140 four days after the vote.
Investors reacted differently to the Quitaly vote because they were mostly expecting its results. And the markets reward predictability.
Indeed, for first time since Brexit, the polls accurately predicted the turnout of a major referendum. In one final closing poll on Nov. 18, the "no" camp was leading by more than 50%. The betting markets were also predicting a "no" vote, giving it a 77% chance, according to the International Business Times.
Also, the Quitaly vote wasn't the only contentious referendum over the past weekend…
Austrians rejected an anti-immigrant, anti-European Union populist in its presidential election on Sunday. It's possible that this win for the EU establishment helped calm investors' unease over Quitaly. The Austrian election results proved that the populist wave sweeping the globe isn't ubiquitous.
Lastly, the "no" camp's win will initially add to Italy's political issues, but it's nothing the Eurozone, Italy, and investors aren't used to.
In the long term, however, the vote could spell bad news for the EU.
The resignation of Italian Premier Matteo Renzi has strengthened the populist, anti-EU Five Star Movement, which is currently Italy's largest political opposition, according to The Wall Street Journal. Since the EU is the reigning political and economic order in Europe, any threats to it might destabilize the markets, causing a few bumps and bruises.
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