Stock Market Slump Due To Obama?

So was the big loss in the stock market the other day due to Obama winning the election? I don’t think so. Yesterday also saw the release of the employment/unemployment numbers from the Bureau of Labor Statistics. While the unemployment rate held at 6.1%, the nonfarm payroll fell by 159,000 jobs, an it is likely that the reason why the unemployment rate held at 6.1% is because of the number of people who left the labor force. This is not good news to an already jittery market. And prior to this we had bad news in terms from manufacturers and autos the day before the election.

Update: Actually the employment numbers above were from September. In listening to the radio this morning they referenced employment numbers as being one reason for yesterdays slike in stock prices. When I went to the BLS website I failed to check the date. However, yesterday did see the release of the Institute of Supply Managment’s service index which is down pretty much across the board. New business activity? Down. New orders? Down. Employment? Down. The only areas where things were increasing or unchanged were in prices, new export orders and imports.

As for todays drop the big news seems to be that the weekly unemployment insurance claims are up to 3.8 million on a seasonally adjusted basis which represents a 25 year high, and is up about 1.3 million from a year ago. Also, the BLS preliminary reports show that productivity growth has slowed as well.

As Dave Schuler notes, Barack Obam is going to find himself in a position very much like the one George Bush found himself in: coming into office with a slowing/contracting economy. Now might be a good idea of rethinking that tax increase, at least for awhile.

FILED UNDER: Campaign 2008, Economics and Business, US Politics
Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.

Comments

  1. even OTB doesn’t blame stocks on Obama http://tinyurl.com/6bczkw

  2. Drew says:

    In Latin:

    Stock marketus plummetus, not Obamas causus.

    People are only slowly coming to the realization of the reality of economic prospects. There is more to come. Think Citicorp.

  3. Dave Schuler says:

    Hmmm. Inherits an economy already slowing down from his predecessor. I think I’ve seen this movie before.

  4. Steve Plunk says:

    The Obama win has made an already jittery market even more so. The prospects of tax hikes, greater regulations, cap and trade schemes, and overall demonizing of productive corporations is seen as a storm on the horizon worrying both investors and managers.

    The economy is looking for any good news it can grasp on to and the election results are not good news for business. I expect a more orderly retreat but a retreat none the less. Businesses will build bunkers against the coming onslaught and expansion will be severely curtailed unless Obama wins our trust.

    The slump is not all Obama’s fault but his election is a major contributing factor.

  5. Bithead says:

    I’m not one to attribute short term market moves to specific events. If it was that easy, we’d all be rich.

    Still, this downward trend has been going on for a while now, and on that basis, one could logically ask if there wasn’t a connection to investors stepping out of the way of the oncoming Obama train…

  6. Patrick T. McGuire says:

    So was the big loss in the stock market the other day due to Obama winning the election? I don’t think so. Yesterday also saw the release of the employment/unemployment numbers from the Bureau of Labor Statistics.

    OK, and so what is your explanation for today’s crash then?

  7. just me says:

    I blame Obama.

  8. Eneils Bailey says:

    The Obama win has made an already jittery market even more so. The prospects of tax hikes, greater regulations, cap and trade schemes, and overall demonizing of productive corporations is seen as a storm on the horizon worrying both investors and managers.

    Managers and Investors are looking out into the future; Did non see much HOPE AND are making a CHANGE.

    I’m not one to attribute short term market moves to specific events. If it was that easy, we’d all be rich.

    Two good comments about the current and future situation.

  9. Steve says:

    Yesterday also saw the release of the employment/unemployment numbers from the Bureau of Labor Statistics. While the unemployment rate held at 6.1%, the nonfarm payroll fell by 159,000 jobs, an it is likely that the reason why the unemployment rate held at 6.1% is because of the number of people who left the labor force.

    Those are the numbers for September. (See the date of release on the link: October 3rd.) The October numbers are released tomorrow, Friday. And they will probably be worse.

  10. ken says:

    We need a return to the wise old policies that helped create our wealth in the first place.

    We need stronger bank regulation that will lead to stronger banks. We need a curb on short term speculation that will leave room for long term investments. We need to higher wages for American workers for American business to sell products and services to. In short we need to return to the liberal progressive policies we once had in the past when we were growing our economy.

    To the extent Obama can accomplish any of this we will see the stock market respond favorably. The more he can accomplish the better the market will react.

  11. Drew says:

    People of Rome !!

    Look, the financial crisis and future economic prospects have been factored in for awhile. The Obama victory is not new news.

    If you want to make a political point, please correctly point out that the mortgage mess is a produst of: CRA, Clinton era PUSH of CRA, and failure of regulatory response See: Barney Frank et al.

    Second, yes. Higher personal and capital gains taxes are not a prescription for economic vitality. But that’s been priced into the market for a while.

  12. Steve Plunk says:

    Ken’s comments got me to thinking about short term speculation, controls against it, and capital gains taxes. I don’t agree with a progressive agenda but I do see ways to improve.

    It seems short term thinking has created volatility in the markets yet how do you curb it? One possible way, and I throw it out for criticism, is a total rethinking of capital gains tax rates and holding periods. As it is investors are afforded favorable cap gain rates if the assets are held for more than a year. But what incentives are there to hold assets for two years or five years? Would a system of cap gains tax rates that moves lower the longer an asset is held restore stability and reward investors that invest in such a way to stimulate the economy? Why is one year the magic number for cap gains treatment? Do money managers and traders needlessly buy and sell in a volatile market and would this treatment discourage such behavior?

    Trading stocks does not stimulate the economy. Stock offerings by a corporation creates investment capital but once a stock is out there it really doesn’t create anything but traders commissions. That said, the price of a stock already issued does have an effect on any new stock to be offered. Long term investors provide stability to that stock price and perhaps they could even remove the incentive for CEOs to pump stock prices in the short term to reap big bonuses.

    What might be the downsides to restructuring the cap gains formulas in such a way?

  13. Zelsdorf Ragshaft III says:

    Looks like the market took another dive. Another day like today and the market will be in the 7k’s. When the democrats took the house and senate the dow was 12,490. Let us see how the man who has so little managerial experience manages.

  14. Michael says:

    Steve,
    How long do you want to encourage them to hold an investment when they should be moving money out of it? You’d have to be careful that you don’t end up reducing the responsiveness of the market to a detrimental point, just like we don’t want to increase the reactivity of the market to a detrimental point.

  15. axt113 says:

    Tax increases on the rich won’t be as much of a danger, because right now it doesn’t matter, the rich can’t pull this country out of the recession, monetary policy can’t pull it out, corporate investment can’t do it, only massive consumer spending and an expansion of government spending can do it, we need to engage in some good old Keynesian economics to get this country out of this recession, we need to spend our way out of this, spending will generate demand, and that demand will fuel job growth and investment. Demand has collapsed as people have stopped spending, and it is fueling the decline and job loss.

  16. Steve Verdon says:

    We need stronger bank regulation that will lead to stronger banks. We need a curb on short term speculation that will leave room for long term investments. We need to higher wages for American workers for American business to sell products and services to. In short we need to return to the liberal progressive policies we once had in the past when we were growing our economy.

    That ended with the recession of 2001.

    This idea that government policies can beat the business cycle is a eidolon that has been pursued for decades.

  17. G.A.Phillips says:

    Stupid Conservatives BUSH DID IT!!!!!!!!

  18. just me says:

    Well the democrats can only blame Bush for so long.

    They have owned the house and senate for two years and are about to own the white house. At some point they have to stop playing the hate/blame game and start leading. The problem is that their ideas are as likely to make things worse.

    I think one step is to stop looking to the government to protect risk. The government shouldn’t be bailing out businesses that took risks and loss. Sure it might hurt a lot in the mean time, but in the end the market will be better for it.

    I suspect the democrats will end up giving us some more bailouts-especially an auto industry one (like they deserve another-but then the UAW is a powerful union). The sad thing is the democrats will do it but probably find enough useful idiot republicans to go along with it.

    But I do think one small part of the problem is that too many companies think they can take great risk because the taxpayer will protect them from any real losses.

  19. Dave Schuler says:

    Well the democrats can only blame Bush for so long.

    Yep. For so long as it works. They’re still beating up Hoover and that’s almost 80 years ago.

  20. Michael says:

    Well the democrats can only blame Bush for so long.

    They have owned the house and senate for two years and are about to own the white house. At some point they have to stop playing the hate/blame game and start leading.

    You would think so, but the Republicans have proven that a party can blame the previous administration for as long as 8 years. I have every confidence in the Democratic party being willing and able to do the same.

    I think one step is to stop looking to the government to protect risk. The government shouldn’t be bailing out businesses that took risks and loss. Sure it might hurt a lot in the mean time, but in the end the market will be better for it.

    The government’s job is to protect it’s citizens, not the market. As I’ve said before, what is good for the market is not always good for the people.

    I suspect the democrats will end up giving us some more bailouts-especially an auto industry one (like they deserve another-but then the UAW is a powerful union). The sad thing is the democrats will do it but probably find enough useful idiot republicans to go along with it.

    The auto industry bailout is already being worked out, so you get no points to being able to predict that one.

  21. Steve Verdon says:

    You would think so, but the Republicans have proven that a party can blame the previous administration for as long as 8 years. I have every confidence in the Democratic party being willing and able to do the same.

    Lets make this slightly more accurate. You can, of course, blame the previous administration for as long as you like. Whether or not the voters believe you is another matter entirely and one of the problems McCain ran into. Many of the problems we have today, rightly or wrongly, have been laid at Bush’s feet as well as the Republican Party.

    The government’s job is to protect it’s citizens, not the market.

    Ahhh the root mentality that is behind much of today’s Nanny-ism. I got upside down on my mortgage because I’m an idiot…bail me out, bail me out. I mis-managed a financial corporation…bail me out, bail me out. I stubbed my toe…bail me out, bail me out. Never mind the perverse incentives this kind of thining leads too.

    As I’ve said before, what is good for the market is not always good for the people.

    The market is comprised of people, thus your reasoning is flawed.

  22. Michael says:

    Lets make this slightly more accurate. You can, of course, blame the previous administration for as long as you like. Whether or not the voters believe you is another matter entirely

    Probably 90% of the people that voted for the previous administration will not believe you, and 90% of the people that voted for your administration will. Smart politicians can swing another 10% in their favor.

    Ahhh the root mentality that is behind much of today’s Nanny-ism. I got upside down on my mortgage because I’m an idiot…bail me out, bail me out. I mis-managed a financial corporation…bail me out, bail me out. I stubbed my toe…bail me out, bail me out. Never mind the perverse incentives this kind of thining leads too.

    I think you misunderstood my position, Steve. I don’t mean “protect” as in “protect them from themselves”, I was always against the bailout. I meant that a government’s decisions should be based on how it helps or hurts it’s citizens, not on how it helps or hurts the markets. Usually they are one and the same, but sometimes the diverge, and in those cases the government should always favor the citizens.

    The market is comprised of people, thus your reasoning is flawed.

    A government is comprised of people too, would you extend your statement to claim that what is good for the government is good for the people?

    Yes, a market is comprised of people, but in an optimal market, some portion of the people do better than others. In an optimal market, some people lose. Sometimes for a sub-optimal market to get back to being an optimal market, a lot of people have to lose.

  23. Eneils Bailey says:

    but in an optimal market, some portion of the people do better than others

    Yes, and maybe in some cases they should do better. Maybe, they worked harder, were a wee bit smarter, and did not depend on other people.

    Sometimes for a sub-optimal market to get back to being an optimal market, a lot of people have to lose.

    Yeah, and you can bet your ass, the smart, industrious, and non-dependent people on government will recover.

    In my younger days, an ignorant, uneducated, dumb asshole has never offered me a job….Hold on…I did get some offers for government employment.

  24. Michael says:

    Yes, and maybe in some cases they should do better. Maybe, they worked harder, were a wee bit smarter, and did not depend on other people.

    I’d say that’s the case more often than not. Don’t take my statements to mean I think the way the market works is bad, it’s just that is the way it works. For the most part, it’s the way we should let it work, because most people will win some, a few will win big, and a few will lose big, that’s all around a good solution. But don’t think that means that what is good for the market is always good for the people, because there is no reason why that will always be so.

    Yeah, and you can bet your ass, the smart, industrious, and non-dependent people on government will recover.

    Well of course, once the people losing form a large enough portion of the voting constituency, the “will of the people” moves towards having the government help. Democracy is like that.

    In my younger days, an ignorant, uneducated, dumb asshole has never offered me a job….Hold on…I did get some offers for government employment.

    Nor me, but plenty of “educated” ones have, and none of them worked for the government.