BusinessWeek Asks, ‘Did Obama Cause Stock Slide?’

Did Obama Cause the Stock Slide?
Wall Street has soured on the new Administration’s policy moves. Can this relationship be saved?

At least on Wall Street, the honeymoon is over for President Barack Obama.

Polls still show the President has strong popularity among the general U.S. population, and Obama continues to command power in Congress. But among investors, fairly or unfairly, there is griping that the new Obama Administration is at least partly to blame for the recent slide in stocks. Since Nov. 4, Election Day, the broad Standard & Poor’s 500-stock index is off about 25%, and since Jan. 20, when Obama took office, the “500” is down 15%.

It’s never easy to determine exactly why the stock market moves in a particular direction. Plenty of other factors have influenced stock prices since November. For example, the global economy has slowed further and the outlook for corporate profits has worsened.

But BusinessWeek interviewed a wide array of investment professionals, and many said the first six weeks of the Obama Administration have soured their outlook on the stock market.

Bar Was Too High

It wasn’t always so. On Nov. 21, word arrived that Timothy Geithner would be tapped as Obama’s Treasury Secretary and markets rallied immediately. The S&P 500 rocketed 15% higher that day and the following trading session.

Stocks continued to climb into January, and even rallied in the week after the inauguration. “Hopes were too high,” says independent market strategist Doug Peta. Too many were hoping the new Administration would have “this magic potion to solve our problems,” he says. “That was unrealistic.”

Proposals for a stimulus bill pushed infrastructure stocks to unsustainable heights. Caterpillar (CAT) surged 39% from the market lows in November to early January. Since then, shares in the maker of construction equipment have tumbled back down again, falling 43%.

Charges of Bungling

Many investors hoped Obama could start to solve the stock market’s—and the economy’s—biggest problem: the credit crisis. “It was a false hope,” says Brian Reynolds, chief market strategist at WJB Capital Group, who believes there is “nothing the government can do to stop the crisis.”

Others are more hopeful the government can ease credit conditions, but say the Obama Administration has bungled the operation so far. A Feb. 10 presentation of a financial-sector relief plan by Geithner was widely criticized. Stocks fell almost 5% that day.

Geithner was a “particularly poor salesperson back on Feb. 10,” says Marc Chandler of Brown Brothers Harriman, who says he voted for Obama. “The Obama Administration has failed to get ahead of the curve.”

Uncertainty Leaves Room for Rumors

A lack of details from Geithner disturbed investors, says Quincy Krosby, chief investment strategist at the Hartford (HIG). “Markets need certainty,” she says. “The market has been sitting here waiting, waiting, waiting. That allows rumors and conspiracy theories to dominate.”

Jerry Webman, chief economist at OppenheimerFunds (OPY), defends the Administration. “I would like to see Administration people more visible” on the issue, he says. But, “the problem is: What do we expect them to say? ‘This is a big complicated problem and we don’t know where we’re going to get the money to solve it’? That would be the truth,” Webman says, but it wouldn’t make market participants very happy.

Credit issues may be the chief complaint about Obama among investors. But they’re hardly the only gripe. In recent weeks, Obama has made clear he intends to keep campaign promises on health-care reform, climate change regulation, and higher taxes for Americans who earn more than $250,000.

Surprised by “Leftism”

Professional investors tend to be more conservative, so it’s perhaps no surprise they’re concerned. “The basic agenda of Obama’s Administration is going to be more leftist and less centrist than I had anticipated,” says John Merrill, chief investment officer at Tanglewood Wealth Management in Houston.

The impact of Obama’s proposals are easy to see in particular segments of the market. In a speech to Congress on Feb. 24, Obama pledged a “substantial down payment” on health-care reform. David Chalupnick, head of equities at First American Funds, points out that, since then, stocks in the Dow Jones U.S. Health Care Providers Index (IHF) are down 16%. Health-care stocks had been a relative safe haven in the market, because medical spending tends to hold up even in recessions.

Investors aren’t just expressing their political beliefs that taxes and regulations are bad for the economy. They’re also making a practical calculation that they will hurt corporate bottom lines in the future. “What you’re doing is lowering the profitability of these firms,” says Bill Larkin of Cabot Money Management.

Short-Term Focus

There may be little right-leaning investors can do about liberal policies coming from the White House. “A majority of Americans elected this President on that platform,” says Jeffrey Kleintop of LPL Financial Services. In any case, many in the market are more focused on short-term concerns—the recession and the credit crisis—than the long-term implications of Obama’s policies.

“People are looking for a very quick fix,” Larkin says. “It’s the way the markets are. They like to have a problem resolved.” Unfortunately, solutions from Obama, the Federal Reserve, or anyone else are slow in arriving. “It’s going to take time,” Larkin says.

On Mar. 3, Obama tried to get investors to take the long view. “You know, it bobs up and down day to day,” Obama told reporters, referring to the stock market. “And if you spend all your time worrying about that, then you’re probably going to get the long-term strategy wrong.”

Missed Opportunities Early On

Obama and Geithner missed the chance—if they ever had such an opportunity—to “wow” the market and help restore some market confidence early in his Administration, Larkin says. So, instead, “this is going to be a long, drawn-out thing.”

Investors will need to wait to see evidence that the stimulus package and measures to ease the credit crisis are really working. “The market is sitting back and saying: ‘Show me the money. I’ll believe it when it happens,'” Kleintop says.

Obama also tried to argue on Mar. 3 that stocks were a good buy. “Profits and earning ratios are starting to get to the point where buying stocks is a potentially good idea,” Obama said, adding “if you’ve got a long-term perspective on it.”

The problem for investors is the long-term outlook has never looked so fuzzy. With the economy deteriorating, the credit crisis continuing, and the Obama Administration still formulating a response, few feel confident enough about the future to buy stocks. It may be quite some time before investors find a change they can believe in.

Steverman is a reporter for BusinessWeek’s Investing channel.

BusinessWeek is not a conservative source.   The fact is that many analysts and business and financial professionals – liberal and conservative alike – have taken a far more committed position that in point of fact Obama is to a very large degree responsible for the continuing slide in the stock market since his election.

You can consider the “rant” of Rick Santelli on the floor of the exchange:

‘The government is promoting bad behavior… do we really want to subsidize the losers’ mortgages… This is America! How many of you people want to pay for your neighbor’s mortgage? President Obama are you listening? How about we all stop paying our mortgage! It’s a moral hazard’…
— Rick Santelli, CNBC

Or you can read Larry Kudlow’s article, “Obama Declares War On Investors, Entrepreneurs, Businesses, And More.”

You can read the Wall Street Journal article, “The Obama Economy: As the Dow keeps dropping, the President is running out of people to blame.”

You can watch CNBC’s “Mad Money” host Jim Cramer (who is a liberal) “go nuclear” on Obama.  His exit quote is, “This is the greatest wealth destruction I’ve seen by a president.”

You can read the mea culpa of the New York Times David Brooks (a moderate) in which he is “forced to confront the reality that Barack Obama is not who we thought he was.”

You can go back to a poll taken by Chief Executive Magazine before the election  in which “74 percent of the executives say they fear that an Obama presidency would be disastrous for the country.”

You can go to a Politico article written about the same time as the one above that anticipates a selloff if Obama won, and a much larger selloff if Obama won with a substantial Democrat majority in Congress.

You can read an MSN article written all the way back in July, 2008 titled, “Why Wall Street Fears Obama.”

We can even go back as far as March, 2008 when Dick Morris was eerily prophetic in his book, Fleeced:

“Obama’s election will trigger a stock market crash and likely devastate the already slumping real estate industry. A selling psychology usually feeds upon itself and can often induce a market-wide panic. So the nearer Obama gets to power the faster the markets are likely to dip. So look for a sharp downturn as election day approaches, and especially in the period between the Democratic victory and Inauguration day. Obama will doubtless blame the drop on the outgoing Bush Administration, but it will be his own tax plans that send the markets into a tizzy.”

As investors for the most part rightly place the blame on Obama for both his mismanagement of the economy as well as his economy-killing social agenda which he has insisted on imposing upon the country in a time of crisis, as an average citizen living in the country you have to realize one thing: you will pay dearly for your president.


Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


%d bloggers like this: