Obama Fights His Own Bull MarketBy
Barack Obama, it might seem, should be privy to unlimited free pints in the pubs of Wall Street. Since he took the oath of office in January of 2009, the Standard & Poor’s 500 Index, including dividends, has very nearly doubled. The country has added $7.3 trillion in market capitalization—an indisputably huge boon to both garden-variety retirement account holders and one-percenters. The six biggest banks just enjoyed their best 12 months since before the financial crisis. In some respects, it’s as if 2008 never happened.
Indeed, Obama is just one of five presidents since 1900 to have overseen at least a 50 percent jump in the stock market during their first three years in office, joining the non-sequiturian class of Coolidge, FDR, Eisenhower, and Clinton. A positive $7.3 trillion sound byte should seem irresistible, especially for a campaign hard-pressed to brandish financial accomplishment.
Don’t expect to see Obama actually run on his bull market. For one thing, he has made a rhetorical whipping boy of investment bankers. “Gov. Romney plans to let Wall Street run wild again,” he tweeted last week. “But he’s bringing the hammer down on Sesame Street.” Obama has proposed to hike tax rates on dividends and capital gains, in sharp relief to the rate cuts proposed by Mitt Romney—he of private-equity pedigree. Even if Obama wanted to sprint a bull-run victory lap, a sense of confusion and contraction has diminished the target audience of the U.S. “investor class.” Oh, and the broader economy generally feels pallid. Why invite more criticism on that front?
“There is limited utility for Obama on this point,” says Andy Laperriere, head of the policy research practice of ISI Group. “While stocks are up, real wages are down, GDP growth has been anemic, and the unemployment rate remains high.”
Contrary to popular belief, U.S. markets have fared substantially better under Democratic presidents. According to Barclay’s Research and the Economist, since 1929 donkey White Houses have bested elephant ones to the tune of a 10.8 percent average annual return compared with 2.7 percent. Of course, a president exerts only so much control over the economy and markets, which have to process everything from interest rates and war to oil shocks, financial scandals, and bubble-blown euphoria and panic.
In Obama’s case, stocks started their free-fall mere weeks before his election, and bottomed only in March 2009, when they were at lows not seen since the mid-1990s. Yes, the Obama fiscal stimulus and bailouts of certain banks and automakers helped arrest the broad free fall. But so, too, did record accommodation by the Bernanke Federal Reserve and Apple’s unfolding world domination.
Greg Valliere of Potomac Research says he’s skeptical of finding a correlation between presidencies and markets. “You can prove or disprove almost anything with statistics,” he says, “but I would argue that the market clearly wants Romney to win, because he would bring a sense of predictability to issues such as tax policy.”
In the proposed Obama budget, the top dividend tax rate would more than double from its current 15 percent to 43.4 percent. The top capital gains rate would jump from 15 percent to 30 percent. Moreover, Obama’s Affordable Care Act calls for a 3.8 percent investment tax on certain brackets and investments. By comparison, Romney’s economic plan touts a continuation of today’s discount taxation of dividends and lower rates on income taxes in every bracket.
Valliere says the stock market was up early in Obama’s term “largely because it couldn’t go down much more, and the shock of the 2008 meltdown gradually ebbed.” He credits continued Federal Reserve stimulus for its ongoing ascent.
The S&P 500 set its record absolute high five years ago, in the waning days of the credit bubble that reached its peak under the Bush administration. On a total return basis (including dividends), the index made new highs this year. The thing is, though, a record number of individual investors whom Obama could appeal to—whoever, wherever they now are—don’t seem to give a quack. John Q. Investors are ditching the market en masse. According to the Investment Company Institute, 46 percent of American families say they own stocks or stock funds, a decline from 53 percent in 2001. Since the market set its low three and a half years ago, investors have pulled a net $138 billion from mutual funds and exchange-traded funds that invest in U.S. stocks, according to the ICI.
Amid this broader apathy, there’s some chatter that the market actually does not want to see Obama go. After all, the ultralow-rate status quo rests upon White House-Capitol Hill gridlock and record accommodation from the Federal Reserve. Wouldn’t a Romney-Ryan win hurt the chances of Bernanke staying in office?
At Wednesday’s Big Picture conference in Manhattan, investor Jim Bianco said the market has pulled back since Obama’s bum debate showing, reflecting the greater odds of fiscal and monetary hawks assuming power.
“The market,” insists Valliere, “wants Romney, period. Market pros concede that the stock market has done well, but the vast majority of these people are convinced that the market has risen in spite of Obama, rather than because of him.”
So you can see why Obama might steer clear of touting the bull market. He doesn’t much need a sequel to “you didn’t build that.”