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Stocks turn in worst performance for new president
The Dow Jones industrial average has fallen 21 percent during President Obama's first seven weeks in office. Count back to Election Day and the results are even bleaker: a loss of 32 percent.
The Associated Press
NEW YORK — The election of Barack Obama offered the promise of a new set of fixes for the financial crisis and the economy, a do-over that might help nurse the stock market back to health.
Since then, the market hasn't just gotten worse — it's turned in its worst performance ever for a new president.
The Dow Jones industrial average has fallen 21 percent during Obama's first seven weeks in office. Count back to Election Day and the results are even bleaker: That afternoon, the Dow closed at 9,625. Now it stands at 6,547, a loss of 32 percent.
Is this the Obama bear market? Or hangover from the Bush administration?
Some investors blame the slow-motion crash on Wall Street's disappointment with the government's $787 billion stimulus plan, its seemingly endless bailouts and the lack of specifics on how to rid banks of toxic assets.
Others say Obama inherited a recession destined to become the worst since World War II. And they note the market was already in awful shape at the tail end of the Bush administration, down 44 percent from the market's 2007 peak to Inauguration Day.
Either way, Wall Street has not exactly rolled out the welcome mat for Obama. Stockholders have lost $1.4 trillion during the young administration.
"There's not much evidence that anything is working," said Hugh Johnson, chairman of Johnson Illington Advisors. "Investors are waiting to see some results from these grand plans, and they don't see them yet."
Obama still has the nation's support — a 67 percent job-approval rating, according to a recent Associated Press-GfK poll. But Americans are racing nevertheless to pull money out of stocks. In the week ended March 4, nearly $30 billion was removed from stock mutual funds, according to TrimTabs Investment Research.
It is far from the only time investors have refused to grant a new president a honeymoon.
Before Obama, the worst Dow performance for the first seven weeks of a new administration was an 18 percent plunge in 1974 after Gerald Ford was sworn in, during a severe bear market triggered by the Arab oil crisis.
Ronald Reagan presided over a Dow decline of more than 20 percent from April 1981 through the end of the 1982 bear market. And in 2001, George W. Bush's first year in office, the Dow plunged from a peak above 11,000 to a low below 8,300 after the Sept. 11 attacks.
Market analysts usually play down the influence of presidents on the market but say this time could be different as taxpayer dollars prop up private companies and Obama's first proposed budget stands at $3.6 trillion, with a gaping deficit.
In this case, said Wachovia Securities chief market analyst Alfred E. Goldman, investors are saying "they have no confidence in the stimulus package doing much stimulation anytime soon. And they're greatly concerned about the size of the budget."
On some of the most wrenching recent days in the market, it's been easier to connect cause and effect.
The Dow sank 4 percent on Feb. 10 as Treasury Secretary Timothy Geithner unveiled a new bank-bailout plan that Wall Street immediately criticized as laughably light on details.
Several weeks later, investors shaved an additional 4 percent off the Dow after the government agreed to give insurer American International Group an extra $30 billion, bringing its loan total to $180 billion.
Now the Dow seems to drift lower day after day, with Wall Street waiting for clarity and selling in the meantime.
Investors want to know when and how the government will cleanse banks of bad debt and whether it will suspend accounting rules requiring companies to value assets at current market prices.
Over the weekend, White House budget director Peter Orszag stressed that Obama was handed a weak economy.
"Job losses began in January of 2008. The stock market started declining October 2007," he said on CBS' "Face the Nation." "This has been, you know, eight years in the making, and again, it's going to take some time to work our way out of it."
Presidents themselves generally try to distance themselves from the market's gyrations. So pundits were surprised last week when Obama seemed to offer advice.
"What you're now seeing is profit and earning ratios starting to get to the point where buying stocks is a potentially good deal," he said, "if you've got a long-term perspective on it."
The Dow lost 37 points that day before rising about 150 the next.
The recession began in December 2007, before Obama even won the Iowa caucuses. And it accelerated dramatically under Bush, with the economy shrinking at a 6.2 percent annual pace his last full quarter in office.
There's no reading yet on how much the economy has shrunk under Obama, but indicators are dire. Unemployment has jumped to 8.1 percent, highest in 25 years.
Jon Merriman, chief executive of brokerage Merriman Curhan Ford, cautioned that the stimulus package will take time, probably six to nine months, to work its way through the economy.
Time is something Obama has plenty of. Ronald Reagan wound up with a healthy 135 percent gain on the Dow for his time in office. Gerald Ford picked up a respectable 23 percent for his shortened term.
"The guy's been in office for two months," Merriman said of Obama. "We gave the last guy eight years. Let's give this one some time."
The AP's Tim Paradis contributed to this report.
Copyright © 2009 The Seattle Times Company
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