By Murray Gunn

Most people think that attitudes toward independence among Scottish voters wax and wane according to political developments, but this chart shows that the stock market is a reliable gauge of changing views, as it is a leading indicator of social mood.

Our chart, with a data set that begins in the late 1970s, shows support for Scottish independence as polled by IPSOS Mori against the 36-month rate-of-change in the FTSE All-Share index priced in terms of Sterling gold. It shows a relationship between support for Scottish independence and the momentum of the stock market priced in real money. 

As you can see, support for Scottish independence has typically risen as the real money value of the stock market has gained momentum, and support for Scottish independence has typically fallen as the real money value of the stock market has lost momentum. 

Can anything explain this phenomenon? Robert Prechter’s socionomic theory proposes that the stock market is an indicator of social mood. As social mood becomes more positive, fear wanes, confidence waxes and speculators send stock prices higher. As social mood becomes more negative, on the other hand, fear waxes, confidence wanes and speculators send stock prices lower. Just as corporations can merge due to a fearful quest for survival (think Bank of America-Merrill Lynch during the financial crisis in 2008) or due to a confident bid for power and world domination (think AOL-Time Warner at the height of the dot-com bubble in 2000), countries can merge or come apart with differing underlying psychological motivations based on the social mood trend. Scottish independence movements have generally been products of confidence rather than fear, thus they have enjoyed more popular support when social mood is trending positively, as reflected by gains in the stock market. 

A survey of Scottish history bears out this conclusion. In 1928, near a major high in the stock market, the pro-independence National Party of Scotland formed. After the negative mood of the Great Depression, what remained of the National Party of Scotland merged with the Scottish Party to form the Scottish National Party (SNP) we know today. The SNP made solid gains during the bull market of the 1960s with rapid growth in the number of recognized branches, and it made a breakthrough in UK politics by gaining seven seats in the February 1974 general election amid mixed mood. (Despite being in a decline from 1972, the FTSE All-Share index was still up 25% since 1970.) 

More recently, Scotland voted to re-establish a national parliament during the roaring bull market of the 1990s. In 2007, as the FTSE All-Share index was hitting new all-time highs, the SNP won the Scottish Parliament election for the first time. Scottish independence gained momentum along with the stock market after the Great Recession, as social mood became more positive and confidence returned. Although that momentum culminated in a 2014 independence referendum, it wasn’t quite strong enough to push Scotland over the edge to independence, as voters ultimately decided that Scotland should remain in the UK. 

So will the Scottish people vote for independence if they get another chance? The evidence suggests the answer very much depends on the trend of social mood as reflected in the stock market. If the stock market roars into a vote, it’s likely that “the lion in the north” will roar support for independence too. However, if the market loses its upside momentum, the evidence suggests that the SNP’s dream of independence will, once again, be thwarted. 

About Murray GunnMurray Gunn is the Head of Global Research at Elliott Wave International. He is the editor of EWI’s European Short Term Update and contributes to the firm’s monthly publication, Global Market Perspective. His study, “Bravehearts, Bulls and Bears: Scottish Independence and the Stock Market,” appears in the October issue of The Socionomist. 

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