As Friday morning trading began Wall Street was forced to shut down as a stop gap measure because Dow futures dropped 500 points. The measure was to give the market pause in order to prevent panic selling when actual trading began. Uncharted territory in an increasingly uncharted market.
While much of the problem in the extremely volatile stock market lately is due to continuing reaction to the collapse of financial institutions due for the most part to the mortgage crisis, there are two other factors that weigh heavily on this current markets somewhat panicked reaction. One is the 24/7 news cycle and the other is the continuing lead by Barack Obama in the polls which has many on Wall Street concerned because of Obama’s tax and spend polices.
First the 24/7 news cycle. In 1987 the Stock Market plunged by nearly 25% in one day which caused panic by investors. Yet the crisis ended relatively soon at the market rebounded over the next two weeks. One major difference in the 1986 crash and the one we are experiencing today is the fact that news of what is happening on Wall Street receives a constant reporting because of the 24/7 news cycle that we have now with cable news networks who have a lot of time to fill.
In 1986 when the one day crash occurred news consisted of the usual alphabet, ( ABC, NBC and CBS), evening news broadcasts. Cable News was in its infancy and had a small audience. As a result the country was treated to only occasional reports of the action on Wall Street. Compare that with today when news outlets on cable keep the moment by moment DOW and NASDAQ boards running at the bottom of the screen.
Whenever one tunes into a news channel, of which there are many, the actions of the Dow are mentioned in every segment usually at the top of the segment with a quick reminder again at the end of the segment before going to a commercial break. As such we receive a barrage of coverage which increases anxiety about the markets and cannot help but add to the panic as investors watch numbers move in real time. Those who would normally ride out financial problems on the market panic as they watch the numbers and yell SELL !
The second factor is Barack Obama the candidate. Investors react to political policy. Wall Street is understandable concerned about the policy of Barack Obama and negative reaction is rampant throughout the market. According to the Washington Post one top Wall Street executive who has been an Obama supporter has urged the Illinois Senator to reconsider his tax plan which offers increases for those making over 250K a year, both individuals and small businesses and a token tax credit that Obama calls a tax cut of between 500 and 1,000 dollars to the remaining 95% of Americans which will be paid for through redistributing the wealth of the upper 5% of income earners. This credit will also be available as a refund to the 44% of that 95% who DO NOT pay taxes.
Stock prices represent current market conditions AND best guesses of what is coming down the road. Many cannot predict where this slide will stop because some of it depends on the policy of the next President and the promise of increased taxes especially on small business, ( the highest rate for small business seen in decades), raising the capital gains tax, massive increased spending and token tax credits paid for by the upper 5% to everyone else is getting a no confidence vote on Wall Street for Barack Obama.
Most compare Obama’s economic policy to that of Hubert Hoover whose policy ushered in the Great Depression and Jimmy Carter who as President presided over 21% interest rates, double digit inflation, gas shortages due to the institution of windfall profit taxes on oil companies, and negative growth throughout his four years as President. Barack Obama promises to introduce the worst elements of both Hoover and Carter and Wall Street is reacting with great concern that Obama’s policies will continue the slide indefinitely and delay the recovery for possibly years rather than months.