Why Spain's Radical New Coalition Should Buoy the Markets

326 days. That is how long it has been since Spain's last government collapsed. Two elections and a lot of horse trading later, they finally have a new one: a minority coalition between Prime Minister Pedro Sánchez's center-left Socialist Party and the leftist populist Podemos. On the bright side, this eases a year of political uncertainty, but investors aren't cheering. Rather, pundits are dissecting the ruling parties' campaign pledges and fearing the worst for Spanish stocks—especially banks, which have struggled lately. Yet given the coalition is likely powerless to accomplish much, we think reality should prove much better than feared, helping Spanish bank stocks improve.

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