Did Obama cause the slide?

KoolCapricorn (Student) (600 Points)

06 March 2009  

Did Obama cause the stock slide?

6 Mar 2009, 1811 hrs IST, BusinessWeek
 
 
 
 

By: Ben Steverman
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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.