Beware Barack Obama, market killer.
More hyper-politicized hyperbole? Probably. But in a market where some investors are looking for any excuse to argue stocks are overbought and due for a skid, don’t count out a wild reaction to Tuesday’s State of the Union speech.
Generally, the State of the Union doesn’t drive markets: The Wall Street Journal found that over the 50 years from John F. Kennedy to Barack Obama, the Dow Jones Industrial Average rarely rose or fell more than one percentage point the day after.
This is Mr. Obama’s fourth State of the Union (George W. Bush delivered the speech in January 2009 as he concluded his presidency.) In 2010, the Standard & Poor’s 500 fell 1.2 per cent the day after, but returned to the break-even point within five days. In 2011, the index gained slightly the first day and was up 1.2 per cent after five days. And in 2012, a 0.9 per cent gain the day after was wiped out in the next four days of trading.
It’s fair to say, however, that the U.S. markets have been experiencing a fair amount of political volatility in recent months. The day after Mr. Obama’s re-election last November, the S&P 500 fell 2.4 per cent, and the index was 5.25 per cent below its pre-election level after seven days of trading.
Of course, it’s made an impressive run since, with much of the gains coming after U.S. political leaders avoided their “fiscal cliff” and postponed a debt-ceiling showdown until later this year. Can Mr. Obama say anything to reverse the expectation that the denizens Washington D.C. will now begin to act like functioning adults?
Jeffrey Saut, the strategist for Raymond James, thinks so. Mr. Saut, who has been referring to the market’s recent advances as a “buying stampede,” told clients earlier this month the speech “will likely be viewed negatively by the equity markets, which should serve to finally bring about a 5-7 per cent correction.” In Monday’s commentary, he reiterated the view, saying he’s looking for “a trading top this week,” followed by the decline.
“How the stock market reacts following such a pullback will tell us a lot about the market’s future direction.” Mr. Saut says.
Then again, the market may find other reasons in the coming days to take a breather and pull back. But if it happens Wednesday and in the days after, be sure that Mr. Obama’s opponents will have one clear idea about what – or who – is to blame.
READERS: Place your bets, do you expect declines on Wednesday, and if so will it be Obama's fault? Add your predictions to the comments.