The Corner

Stocks Don’t Like Obama

One of the things we’ve learned during the Democratic primary battle is that Hillary’s victories are bullish for stocks and Obama’s wins are bearish.

The clearest example was Hillary’s massive West Virginia victory. Stocks opened strong the following day. But after Obama’s big North Carolina win, a night he nearly carried Indiana, stocks opened way down.

Even though Hillary clocked Obama in Kentucky, since Obama took Oregon convincingly, he really carried last night’s elections and now stands on the verge of gaining the Democratic nomination. Not surprisingly, stocks opened down 80 points this morning.

Markets don’t like Obama. If he wins alongside Democratic gains in the House and Senate, taxes are going up big time. This is especially true for the capital-gains tax, which is the single most important levy on assets of all kind, including stocks. (One wonders if Obama’s cap-gains tax hike will apply to housing, which obviously is in no need of higher taxes right now.)

Then there was Obama’s Des Moines, Iowa, speech last evening. Lots of class warfare: “The Bush tax cuts for the wealthiest 2 percent of Americans that once bothered Sen. McCain’s conscience are now his only economic policy.” Obama went on, “Change is a tax code that rewards work instead of wealth . . . a tax code that rewards businesses that create good jobs here in America instead of corporations that ship them overseas.” Obama then repeated his usual litany: big-government health care, an attack on oil companies, a big spending plan for education, big bailouts for housing, and a pension assault on corporations.

This idea of rewarding work instead of wealth is just insane. Capital needs labor and labor needs capital. You can’t create a new job without a thriving business. But if corporate and investment taxes are going up, how will these businesses be funded? And attacking corporations that work partly overseas is pure protectionism and isolationism. It’s as bad as Obama’s antipathy towards trade deals with South Korea and Colombia, as well as his Carter-like diplomatic initiatives toward Iran and other rogue states.

The stock market is a barometer of the economic health of the nation. It doesn’t like these Obama statements one bit. It sees the handwriting on the wall: an attack on investors, an attack on capital, an attack on business, and an attack on trade. Most of all, higher taxes are anathema to the equity markets.

Interestingly, stocks have preferred Hillary in the Democratic fight a) because she was roughing up Obama for the general-election fight against McCain and b) because markets believe they can do business with Hillary in a way they can’t with Obama.

Last night’s results position Obama on the very edge of the nomination. The Intrade betting-parlor prediction markets give Obama a very strong chance of winning in November. Coupled with expected Democratic gains in Congress, we’re looking at anti-growth policies that could do great damage to the stock market and the economy.

Of course, I am not counting John McCain out. He’s got some important openings that could carry him to the White House. But right now I’m not surprised the stock market is going through a downward correction after the big run-up that followed the McCain surge and the Fed rescue of the banking system.

Larry Kudlow is the author of JFK and the Reagan Revolution: A Secret History of American Prosperity, written with Brian Domitrovic.

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