The stock market is supposed to be swayed by hard data, whether it’s earnings from the world’s largest companies or reports giving new insight on the pace of global growth.

But increasingly  the market seems to be heavily influenced by TV images, especially ones depicting violent and chaotic protests in crisis-riddled Europe.

Earlier this fall, violent protests in Madrid and Athens provoked violent selling on Wall Street and the 2010 Flash Crash occurred on a day when traders were glued to coverage of chaotic demonstrations in Greece.

This phenomenon highlights how concerned investors are about the ability of Europe’s government to enact painful austerity measures and move toward greater fiscal union without losing total control.

“There’s a worry about whether or not the euro has a broad democratic mandate and a protest in the street definitely doesn’t make you feel like it does,” said Nicholas Colas, chief market strategist at ConvergEx.  “It’s one thing to worry about if unemployment is 7.8% or 8.2% and it’s another one to worry about basic issues of social fabric.”

Traders Eye European Unrest

Some market participants blamed the Dow Jones Industrial Average’s 101-point decline on September 25 on TV images showing protests in Madrid, which this year has taken center stage in Europe’s never-ending debt crisis.

“The demonstrations began around 1:30 (EDT) but didn't get much media coverage until about 2:15,” Art Cashin, UBS’s (UBS) director of floor operations at the New York Stock Exchange, wrote in a note the next day. “As cameras panned around, it became evident that the crowds were much larger and somewhat more aggressive than had been estimated.”

Cashin estimated “the Madrid influence” increased the run rate and volume by approximately 100 million to 150 million shares.

“The apparent uncivil tone in the civil demonstration seemed to intimidate stock buyers who seemed to head for the bleachers,” he added.

To be sure, there are always a number of factors that impact stock prices from a day-to-day basis and market analysis is not an exact science. Still, it does seem as though at a number of times over the past few years demonstrations have played a role influencing market sentiment, which can be subject to knee-jerk fluctuations.

“Ultimately stock markets are supposed to reflect corporate cash flows, not macroeconomic sentiment about what southern European countries think about austerity,” said Colas. "But even bullish investors feel tenuous about this market -- and it doesn’t take much to tip them into bearishness.”

Colas said that before the 2008 Wall Street crisis, investors didn’t really pay attention to the occasional strike or protest in Europe. “The market would basically shrug it off and say that’s how they are. I think that stopped being the response. I think people do take it seriously,” he said. 

Flash Crash Memories Persist

Never was that more clear than on May 6, 2010, the day now known for the frightening Flash Crash that featured a brief 1,000-point plunge for the Dow.

While much of the attention about the Flash Crash has centered on the role of high-speed trading, selling on that scary day actually began as protests in Greece erupted, turning increasingly violent.

“Whether it was causation or a correlation, everyone remembers it so it’s become a little bit self fulfilling,” said Colas.

The protests also remind investors how difficult it may be to push Europe towards greater fiscal unity in an effort to fix their fractured monetary union. If successful, closer fiscal ties would ultimately mean a loss of sovereignty for some in Europe.

“It shows the historical animosities. Cultures have memories,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman. “These cultures have been at war with each other for centuries.”

Buying Opportunity?

It’s not just Europe where protests are garnering attention from the media and investors alike. In the U.S., the Occupy Wall Street movement made international headlines in 2011 before fading.

Likewise, the revolutions during the 2011 Arab Spring began as demonstrations but ultimately led to the ousters of the rulers of Tunisia, Egypt and Libya.

Of course, the current demonstrations in Europe are nowhere near the scale of the uprisings that ripped through the Middle East last year – though that may not always be apparent to viewers on the floor of the NYSE.

“It’s so hard to know because on television a thousand people might look like ten thousand,” said Colas.

Sam Stovall, chief investment strategist at S&P Capital IQ, said the focus on protests can sometimes be overdone and investors may be better served by focusing on the fundamentals.

Paraphrasing famous European investor Baron Rothschild, Stovall said: “Remind yourself that the greatest opportunity is when blood runs in the street.”

Follow Matt Egan on Twitter @MattMEgan5