THE STASH NOVEMBER 4, 2009
Apparently there’s a rumor making the rounds in some corners of Wall Street that yesterday’s election results are driving today’s stock market rally—the theory being that the results are a blow to Obama’s agenda, and stopping Obama is good for the market. (I just got a call from a producer at CNBC asking me what I thought about this). The reasons why this theory is utterly ludicrous are almost too numerous to catalogue, but let me give it a quick shot:
First, as I write this (around 1:30 pm), the Dow is up about 100 points, or just over 1 percent. Since March, the Dow has gained well over 3,000 points (or over 45 percent). If I’m not mistaken, Obama was president and moving ahead with his agenda during that entire stretch. So it seems like the Dow has spent lot more time rising when his agenda was on track (about 8 months) than it has when it looked like his agenda might stall (today). (And, for what it’s worth, the Dow is up even if you start with Election Day 2008 or the day of the inauguration.)
Second, the daily movements of financial markets are way, way over-determined. See, for example, this midday Dow Jones piece, which suggests the Dow’s rise today is a function of (in no particular order): The likely Fed announcement that monetary policy will stay easy; the falling dollar, which is boosting the profits of U.S.-based multinationals and exporters; and two semi-encouraging (or at least not discouraging) reports on the labor market.
Third, when you look at the 30 individual stocks that make up the Dow, you notice two classes of companies that might be directly affected by the Obama agenda and, therefore, by the potential thwarting of it. The first is pharmaceutical companies (Merck and Pfizer are both in the Dow). The second is financial services companies (JP Morgan, American Express, and Bank of America are all in the Dow). As I write this, Merck is up 6 percent, which might suggest a post-Election Day boost. Except that, as the aforementioned Dow Jones piece notes, the far more likely explanation of its surge is the companies own prediction today of “annual earnings growth in the high-single digits on a percentage basis until 2013.” Beyond that, Pfizer and the three financial services companies are all up between zero and two percent—no better than a lot of the non-financial, non-healthcare companies in the Dow, like McDonald’s (up 2.5%) or Walt Disney (up 2.75%).
Fourth, let’s think a bit more carefully about the implications of last night’s results. The obvious take-away from the races is frustration with the economy that bubbled-up in the form of a populist, anti-incumbent (or at least anti-incumbent-party) vote. Now, if you’re the White House, and you’re worried about populism born of frustration with the economy, are you more or less likely to whack the big banks? Seems like you’re much more likely to get tough on them, no? Which is to say, if anything, the results of last night’s election should have driven down bank stocks, not driven them up. But that’s the opposite of what we observe.
Finally, while we’re on the subject of actual implications of last night’s election (as opposed to the implications dreamed up by a handful of conservative bond-traders), it’s worth pointing out that the governors of Virginia and New Jersey don’t actually get a vote in Congress. There were only two elections last night that affected votes available for Obama’s agenda: the 23rd congressional district of New York and the 10th congressional district of California. As it happens, Democrats won both those races.
So, uh, no, I don’t think today’s market rally has anything to do with last night’s results.
P.S. For more on why it’s ludicrous to treat the stock market as a barometer of political success (or failure), see Jon Chait’s excellent piece.