Casual observers may notice the 300 point drop in the stock market yesterday and conclude that the market didn’t like the message of hope, change and a new era of responsibility delivered by our new President.
There are a number of reasons why that conclusion would be wildly incorrect.
First, by Mark Hulbert’s count, we’ve had a down market on 19 of the last 27 inauguration days. And the market direction on the first day of a President’s term has no correlation to the market performance of the following 4 years.
Yesterday was a special case. Considering everything that happened in the financial sector, a 300 point drop was pretty mild.
- Bank of America, thought by many to be the healthiest of U.S. banks, had its debt downgraded by Moody’s.
- Citigroup announced it was not healthy enough to hold onto its Japanese brokerage business, as it had previously thought.
- Financial Services company State Street Corp reported sharply lower fourth quarter earnings. In fact, it’s sitting on $5.5 billion in unrealized debt.
- The U.K. also announced a broad expansion of its bank rescue plans. Royal Bank of Scotland is now expected to post a 2008 loss of up to $60 billion, with more on the way.
Since weakness in the financial sector was the impetus for the whole market meltdown in the first place, a storm of bad news on all these institutions in one day could easily have sent the Dow tumbling much lower. Any attempt to attribute it to the new political landscape is misleading at best.