Is Obama or Europe moving the market?

Stocks fell Wednesday. But was it reaction to the presidential election or to protests in Greece?

By Jim J. Jubak Nov 7, 2012 6:16PM
Image: Businessman reading newspaper -- A. Chederros/ONOKY/Getty ImagesDeciding why the stock market did this or that on any particular day is demanded of journalists and analysts. But it's usually an exercise in "magical thinking." Yes, this or that occurred at the same time as the market moved this way or that. But was it the cause of the market's move or merely coincident in time?

Wednesday is one of those days when we've got a big stock market move in the United States -- the Dow Jones Industrial Average ($INDU) closed down 2.36% or more than 300 points -- and two big potentially market-moving events.

First, there's the possibility that Wall Street traders are selling because of Barack Obama won re-election Tuesday night as President. The logic here goes that the selling is a reaction to fears that an Obama victory raises the odds of partisan gridlock over the U.S. budget and the Bush tax cuts. Over the fiscal cliff we go in January. Tuesday the consensus Obama victory trade on Wall Street recommended buying Treasuries, hedging with gold, and selling stocks. For Wednesday, stocks are down and Treasuries are up. Gold, however, is down.

Second, there's the possibility that the U.S. market -- along with European stock exchanges --is selling off because 80,000 people are rallying in Syntagma Square in Athens to protest the latest Greek austerity package. A small number of protestors tried to storm Parliament. Police used water cannons, stun guns, and tear gas. Those protestors threw Molotov cocktails. 

All this as the Greek parliament prepared for the first of two votes on the austerity package. Wednesday's vote, on the labor market "reforms" in the package, is expected to be tougher than Sunday’s vote on the budget itself. Government ministers are predicting that the austerity package will pass Wednesday night but by the thinnest of margins. 

If the measure fails, then there's no chance that Greece would win approval of the desperately needed next 31 billion euro payout at the Nov. 12 meeting of eurozone finance ministers. Without that cash, the Greek government will run out of money sometime in the next two to three weeks and the Greek banking system could stop functioning. All that makes traders and investors nervous. The German DAX stock in index is down 1.96%, the French CAC 40 is down 1.99%, and the Spanish IBEX 35 is down 2.26%.

So what is the explanation for Wednesday's market tumble?

It doesn't have to be one or the other, of course, and there's no doubt that the combination is pretty negative stuff.

But it is worth trying to tease apart the two explanations because they imply such different things about how long any retreat might last.

If this is mostly about Greece and Europe, the decline would be tempered by a successful parliamentary vote on the austerity package tonight in Athens and then could well turn into a rebound if European leaders do something reasonable (which could be short of actual approval) about new funding for Greece on Nov. 12. In other words, if the big problem right now is the Greek/Euro debt crisis, we'll know by watching the markets over the next few days.

If, on the other hand, this is mostly about a second term for President Obama and fear of the fiscal cliff, I wouldn’t expect the market to reverse direction within the course of a few days. The buy Treasuries/sell stocks trade could well go on until we hear sufficiently positive and conciliatory talk out of Washington (which could take a while -- or forever) and prices for Treasuries and stocks move to levels that make reversing this trade attractive enough to overcome fear of the fiscal cliff (for the moment.)

I don’t know of a reliable way to decide between these two potential causal explanations except to wait for events in the run up to Nov. 12 to show that today’s drop is or isn’t mostly a result of worries about Greece and the euro.

I'd save any big portfolio moves until then. Right now we simply don’t know enough.

At the time of this writing, Jim Jubak didn't own shares of any companies mentioned in this post in personal portfolios. The mutual fund he manages, Jubak Global Equity Fund (JUBAX), may or may not own positions in any stock mentioned. For a full list of the stocks in the fund as of the end of the most recent quarter, see the fund's portfolio here. 

23Comments
Nov 8, 2012 10:29AM
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Thats like asking is Socialism or Socialism moving the market...

 

Look, if you are not a member of the 47% (Leech Class) you should be treating democrats as a Jew would a Nazi.  These people are not your friends, they plan to seize what you have earned to give to their 47%. 

 

Buy guns, ammo, Specie, and INVEST overseas, where Obama cannot seize your wealth.   Don't associate with democrats, don't do business with them and certainly don't hire them (why would you anyway)?   The divider in chief won that doesn't mean we need to hand over our wealth to the leech class.  We need to start treating him and his supports as ENEMIES they are.

Nov 8, 2012 9:53AM
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Obama was re-elected by those who make a decision on likability factors and those on some sort of government assistance. Those of us who have paid our way and have built or own businesses understand that the tax and spend ways of Obama will bury this country. If Romney had been elected the market would have gone up because he would be moving our country back to productivity. 
Nov 8, 2012 9:25AM
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The night of the election I made decisions on what I would do the next day based on who won.   If Romney won I was going to shift my cash holdings into various stock sectors including energy.  If Obama won I was going to move money from the market into cash; however I was going to stick with my existing bonds because the Fed will continue QE-Forever.  There are a LOT of people that thought the same thing.  So you had a market crash.  I would expect the stock market downtrend to continue.

 

Why was american optimism so high recently?  It's an obvious question when the numbers came out.  Conservatives that initially thought Romney would lose started to get hope after the debates.  That brought up the optimism levels.  Now that Obama has won that has all gone away and I expect the next set of optimisim numbers will be dismal.  This is going to be a bad xmas...and a bad xmas means a bad stock market and probably a recession.

Nov 8, 2012 8:58AM
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Is Jubak really that stupid? It's obviously Obama. 
Nov 8, 2012 8:57AM
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Get Ready for another round of Molotov Cocktails in Greece.......As Greece defaults and gets out of the European Union....triggering other defaults and Spain is next....!  Germany is having its economy slow down and even stop. So the Party has only just started. Here at home Grid lock is the meal of the day as continued slowing and all economic indicators have prompted a new layoff cycle with layoff's announced in all major sectors; Banking, PHARMA, Manufacturing (what's left). Apple's new toy meets NO left over Disposable income and Apple's growth dives down to single digits. Mean while the unemployment number continues to drop as more are on food stamps and the Not Looking and discourage bucket continues to fill up again after the elections. Inflation is moving along at a 4.2 % clip firmly out pacing any wage / income increases....further eroding purchasing power and impoverishing the entire middle class or what's left of it. As our nation's elderly now evaluates weather to pack up and leave to another country...or stay and see the collapse finally come. Our national debt of 17 Trillion in 2 months cannot be repaid......What then.....!
Nov 8, 2012 8:52AM
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The re-election of obama has left many people comfortable in their ignorance.  The policies of "tax our way to proserity" and "spend our way out of debt" will be once again be tried in the face of massive historical evidence to the contrary.

It's interesting to me that these same people who helped re-elect obama live their personal lives with conservative principles of balancing their own budgets and living within their means.

The only real question left is how long can the mirage of normalcy be sustained?

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Let's allow everyone to have some skin in the game by counting everything of value one receives as income. That would mean the value of food stamps, free or subsidized housing, Medicaid, free school lunches, earned income tax credit, free cell phone, 100% of social security, after one has received their contribution, 100% of VA disability and etc. would be considered as income. Since non of these items, except the taxable portion of social security counts as income when determining poverty levels the number of people living in poverty would take a major drop. By more people having skin in the game the number paying individual income tax would go up. One more note, my wife and I are receiving social security and I also receive VA disability.
Nov 8, 2012 8:19AM
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The markets have not went up in decades!! they have only been recovering past losses.
Nov 8, 2012 7:31AM
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It was neithers faullt!! It was Wall Street manipulation. Plain and simple  If 50% of the investors voted for Obama and 50% voted for Romney yesterday should have been a wash out unless you have people who control the market game. Everybody was un happy. Wall street has egg on its face and got caught with there hands in the kitty. Investors basically got robbed yesterday!!!
Nov 8, 2012 3:23AM
Nov 8, 2012 12:41AM
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To hell with BOTH of these political parties! Why didn't Republican Speaker John Boehner tell us BEFORE the election he was going to RAISE our taxes?....It's Because He was only interested in keeping his position as SPEAKER.....

It's time people wake up....Politicians don't care about us, they're only about keeping themselves in power!

Nov 8, 2012 12:26AM
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Those people called corporations lost yesterday.

 

As it should be!

 

God bless America!

Nov 8, 2012 12:20AM
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So the Greeks passed their austerity measure and now we wait for the budget on Sunday and the EU on Monday. Next up, we have Boner lipping off about no new taxes so the Democrats should let the spending cuts and tax increases occur as scheduled.
Nov 7, 2012 11:46PM
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Haven't you people figured out yet that more than 75% of the trades made each day are made by
High Frequency Traders , Hedge Funds, etc.   They are the ones that are causing all this.
Other non-professionsal investors are not selling their shares in large numbers.  Procedures and fees have to be put in place to curtail the wild swings in the markets which are almost entirely due to the actions of professional traders.  The tail is wagging the dog and the tail should be cut off.

Nov 7, 2012 10:55PM
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What makes you think I voted for Obama?
Nov 7, 2012 10:31PM
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@Hugo6.   YOU are the puppet and your master is Obama,  YOU pathetic clueless liberal.
Nov 7, 2012 10:12PM
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This is retribution by the multi billioaires for defeating their puppet, Romney.  They're making you pay by diminishing your 401k's

and IRA's.  This is a perfect example of why the average person should stay out of the stock market.  If you don't believe it

is manipulated by the filthy rich, then you believe in Santa Claus and the Easter Bunny.

Nov 7, 2012 9:39PM
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So how would we... moron? All of those require the elimination of overpaid administrators and hiring back of all the careers they severed. Let's DO IT right now, before morning. Do YOU really think the American Way is for you to have wealth in the bank, live cheap at Wal-Mart and play stock monger all day everyday? TAX THE RICH. Use it or lose it. You will lose it anyway if you don't start getting some cash circulating on Main Street. It isn't about Reid or Obama... it's about YOU, loser.
Nov 7, 2012 9:04PM
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Let the Republicans pass 2 versions of all major bills: Version A, which will be killed in the Senate by Dirty Harry, and Version B. Version A will be how we would resolve SS, Medicare, Jobs, etc.; Version B will be the Dirty Harry/BO bill which will become law. Maybe the people will wake up in 2014 and provide a veto proof 2/3rds majority in the House and Senate. If not, hello Greece!
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