A few weeks back, I had tracked the steady, depressing decline in the Dow Jones Industrial Average, wondering how much of the decline was in response to an incoming administration that was much more centralized, command-and-control than last year’s campaign suggested. I noted, time and again, that the president doesn’t control the Dow, but that the markets do react to Washington:
The markets have been heading down, pretty sharply. Since Obama’s election, there’s been quite a bit of ominous news for the markets coming from the administration — probably not sufficient to drive down stock prices by themselves, but clearly incapable to mitigate other bad economic factors. We’ve seen anxiety about the lack of detail in Geithner’s plan, massive government borrowing squeezing out capital that would otherwise be available to the private sector, a dread of future tax hikes, and an overall sense that those running Washington see corporate America as a scapegoat/villain/punching bag, not a partner in building prosperity. Oh, and in order to build support for his plan, the president is declaring the economy is on the verge of “catastrophe.”
However, for whatever mistakes the administration has made, Congress may be even more responsible for the markets’ anxiety. We’ve had House Financial Services Committee chair Barney Frank talking about a maximum wage even for companies that don’t take bailout funds, Senate Banking Committee chair Chris Dodd talking about nationalizing the banks, and Rep. Maxine Waters posing questions that are indecipherable to the bank CEOs before the House committee, asking if they’ve reduced the amount of credit available to card holders if they shop at particular stores.
Anybody wanting to invest in a company wants to see a stable business environment conducive to making profits, both short and long-term. When Washington can change any rule at any time, where’s the stability?
On Election Day, 2008, the Dow Jones Industrial Average closed at 9,625; on Inauguration Day 2009, the DJIA closed at 7,949.09. The Dow dropped as low as 6547.05 earlier this month.
But the markets have had a great run in the past few weeks. On Thursday, the Dow almost made it back to where it was on Inauguration Day — closing at 7924.56, and other markets moving similarly. The S&P 500’s gain of more than 20 percent was the fastest gain since 1938.
But Friday was tough, and today the Dow is down 227 as of this writing, at 7549.18.
Has the market made peace with the Obama administration? Maybe, maybe not. CNBC’s Bob Pisani:
Roughly 80 percent of traders believe that the March gains are a bear market rally, and we will again test the lows.
Exactly when is disputed: some believe it will come quickly, in April and May, but about half think that we will move sideways through the summer, with small rallies and selloffs, until we ultimately drop down in the late summer for the “final bottom.” This last one, coming so late, will be the ultimate heartbreaker.
Much of today’s drop is being attributed to the administration’s moves on the auto industry. I, for one, prefer the somewhat tougher line the administration is taking — but wish that President Bush hadn’t given the industry the first loan/bailout late last year. And I’m still worried that the administration’s position, like Bush’s, will become, “I can’t have one or more of the Big Three declaring bankruptcy on my watch, so I’ll spend whatever it takes to avoid that scenario.”