Market One Ups Washington

While Washington has lauded the $787 spending bill as the medicine that will help bring the economy out of the recession that President Obama 'inherited,' the market is taking a different view.  Consider this -- since the spending bill was passed by Congress on February 13th, the S&P 500 has lost over $1.8 trillion in market cap, which is over twice the size of the plan signed into law!  The question for economists now is whether or not the positive multiplier effect associated with the spending bill will be enough to offset the negative multiplier effect from the proportionately bigger decline in the value of US equities in the pension funds, IRAs, 401k's, and investment accounts of Americans.

 

As shown in the chart above, during the first few weeks of President Obama's Administration, the Dow was rangebound with a slight negative bias.  It wasn't until the stimulus bill was signed and the budget unveiled that the bottom fell out of the market.  Since Inauguration Day, the Dow has declined 1,686 points (20.4%).  Of those 1,686 points, 1,253 have come since the passage of the stimulus plan.  While there are certainly plenty of other issues weighing on the market, it's hard to argue that the "stimulus" and budget proposal haven't had a negative impact.  While the Bush Administration was criticized by investors for lacking clarity in its policies regarding the economy, Wall Street clearly is not comfortable with the actual clarity coming out of Washington today.

With a 20.37% decline since Inauguration Day, the Dow's performance during President Obama's Presidency already ranks as the third worst among US Presidents since 1900.  However, one thing Obama has on his side is time.  While George Bush II can't do anything to change his legacy in Wall Street's eyes, President Obama has plenty of time to turn things around.  For the sake of not the Wall Street 'fat cats', but instead the 150+ million Americans who own stocks, let's hope he does.

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Comments

[sox1978]

It's unfortunite, because no matter what Obama does to screw up the markets and the US, it will probably always be blamed on Bush. The Obama lemmings will never admit they were wrong putting him in office

[john]

I have the reverse view. Bush allowed the market to run wild and now we have to clean up his act.

[Drudge Moron]

When did Drudge.com takeover the Bespoke Investment Group. The political commentary has been nothing short of bizarre for a site that has typically focused on hard data and facts. Total waste of time and energy. This absurd post implies that the decline in the market has nothing to do with weaker macroeconomic data all over the world. Are European markets down 25% because of the stimulus package. Just absurd. Grow up.

[dj]

Thanks DM for posting,now maybe Paul H will growup. An sorry C PAC it's on the Rep's until the market turns....it's going to be a long cold 8 years for GOP

[Mike]

All the commentors who have been on this blog complaining the last few weeks that this site has "gotten political" need a reality check.

DC has suddenly (and rather unfortunately) become the center of our financial world, and if this site or similar sites didn't analyze Washington now they wouldn't even be telling half the story. The situation is such that, unfortunately, the field of fundamentals analysis could soon include scouring some slimy congressmen's campaign contribution record for possible industrial biases or poring word for word over the latest inept speech from some obscure arm of the US Treasury. It's sad but true. I for one am thrilled to see some intelligent commentary about what Washington's effect on this market has been. No matter your leanings, I think we all know in our guts that it hasn't been a good effect. Does anyone think what the administration's doing really feels right for this economy? I know I'm scared as hell.

[Mai]

Here is from Barron’s: “Given all the known big-picture reasons for this drenching, does it makes sense to continue enabling the folks who make and sell umbrellas to force it to rain at will? The people with a stake in umbrella prices who are able to trigger a downpour are the traders who bid up credit-default swaps on individual companies, whether they own their debt or not, and short the stock. In combination, these actions feed signals into the market that companies are at risk of default -- often true, sometimes not, never a certainty. The mix of ballooning CDS premiums and collapsing share prices is a factor that can force credit agencies to issue debt downgrades, make real creditors nervous and scare would-be "real money" buyers away from the shares and bonds of the affected companies. The results are some alarming pricing relationships.” This is on top of economic collapse and bank woes that started in December of 2007. So you blame it on Obama!!!

[Charles]

Actually, the performance of the market under Bush is much worse than the figures would imply, because the dollar was dropping and there was eight years of (modest) inflation. Together, these eroded the value of investments by an addition ca. 50%. Similarly, a fair score of Carter would have the market down more due to inflation.

[Bert]

It's your congressman, over the years, who have wasted borrowed money on pet projects that don't contribute to productivity that have finally accumulated beyond the point of the ability to ever pay it back.

[dj]

Bert nailed it...it's Con_greeess_men and women nut jobs and they(out of) control spending .