Of markets and weather

By Daniel Holz | January 26, 2009 11:36 pm

The day after the inauguration I picked up a copy of the Washington Post. Right on the front page, below the article on our new President, was an article about the performance of the stock market on Inauguration Day (including a handy table of the performance over the last 15 inaugurations). The markets tanked, with the Dow shedding 4% of its value. The Wall Street Journal also ran some commentary noting the connection between Obama’s election and market performance. Is there an important message here? No. stocks drop There is essentially zero causation between Obama’s installation in the oval office and market performance on the same day. It’s not like stock brokers woke up that Tuesday morning, flipped on their TVs, discovered that Obama was about to become president, and decided to dump their portfolios. Obama’s election has been incorporated into market valuations for months. These articles are tantamount to talking about the weather on inauguration day (brutally cold, I can assure you). Obama had little to do with the miraculous break in the clouds and sunshine that immediately preceded his swearing in. Newspapers are unlikely to devote an article to the weather on 1/20. And they’re certainly not going to put such an article on the front page. So why are the markets so fetishized that their performance is considered front-page “news”, even on a day with plenty of other notable events?

The market drop is indeed relevant, not as a sign of what Obama will do to the financial markets, but rather, what the financial markets will do to Obama. We are in an era of immense volatility and huge losses. In other times a 4% drop would be highly unusual and notable. But, sadly, in the present climate it has become routine. The economic downturn will almost certainly impact essentially every aspect of Obama’s time in office.

As it happens, the weather can also play an important role in the inauguration of a President. It was bitter cold for President William Harrison’s inauguration in 1841. His speech lasted for almost two hours (a record length), with him standing outside with little shelter. He caught pneumonia, and within a month was dead. There was undoubtedly little correlation between the cold and his death. But it makes for a perfect apocryphal story.

  • Tim

    WOW! The Obama cult of personality is making all sorts of EXCUSES for Obama. and will continue to do so until the end i fear just like bush.
    I wonder if Bush had been elected and the market had the biggest inauguration day fall in american history would this blog entry ever be writted? yeah i didnt think so. olbermann would have a 20 minute diatribe on this and it would be seen as a sign of things to come.
    the left has really lost its compass.

    You write “Obama‚Äôs election has been incorporated into market valuations for months.”
    The market expected/predicted (incorporated in their models) weaker numbers on job reports and consumer spending recently and a thousand times in the past but it was only when those numbers were released did the DOW/Nasdaq etc fall.
    my point is you have no idea what caused it to fall a whopping 4 %-not .5 % or 1% or even 2%- maybe partly it was Obama? what else was going on that day? were weak job numbers released etc etc?????

    Obama does not inspire confidence in the markets. he is trying to do same thing bush did- give out massive tax cuts. it didnt work when bush did it last year. why would it work under obama? his attempted new deal has potential but it will fail because of the WAY he does it. Krugman is right you have to spend A LOT of money- obama is not thinking big enough- but what krugman hasn’t addressed the fact that money has to go to the right places!!
    the economy will get better eventually but all obama cares about is getting re-elected. here’s to hoping for change.

  • Obama

    WOW! Tim you are so right!!! These bloggers have writted way too much politics and EXCUSES for me!!! Will you join my white houses staff so I can get re-elected etc etc????

  • vocabulary cop

    # Of questionable authorship or authenticity.
    # Erroneous; fictitious

    The story is not apocryphal. All of the elements of the story are true (other than blaming pneumonia on cold). But the link between cold and disease is surely fallacious.

  • Erik

    Well considering the fact that when the DOW opened up the next day already half of the loss was wiped and the rest was recovered by the end of that day I really don’t see any kind of significance of it happening on 1/20. Look at the previous Wednesday, there was an almost equivalent drop in the DOW. Quite frankly you’re trying to find some kind of justification for your hatred of Obama by pretending that a drop that’s well within a moderate day in the market is something kind of catastrophic omen.

    However, let us assume that the market gives a damn about which day Obama gets inaugurated. You’re still only looking at the cherry-picked parts oh history, how many presidents have been inaugurated when the market’s teetering on collapse? You have no precedent. There’s at most 2 presidents who’ve been in this situation, FDR and maybe one obscure one. One can draw any kind of trend line with only 2-3 data points.

    I’d be happy that at least we didn’t elect the one that believes the fundamentals of our economy are strong. One Krugman fan to another.

  • tacitus

    Tim, of course Obama cares about getting re-elected — name one modern-day president to didn’t (do I recall something Rovian about a permanent campaign?). But there is little doubt that, just like all other presidents before him, he cares more about his legacy and how history will regard him. If he wants to be remembered kindly, he’s going to have to help get this country back up on its feet, so it behooves him to do as good a job as he is able with little regard, at this point, for his next election campaign in four years time. If the economy is still in the toilet at the end of 2011, he can kiss a second term goodbye. I don’t agree with all his decisions either, tax cuts as a sop to the right wing is a bad idea — but he is the president and he will stand or fall by his decisions.

    I was looking at a couple of right wing message boards at the time of Obama’s address (I am somewhat masochistic in that regard) and the Obama haters were counting down the Dow minute-by-minute as it fell. It’s obvious that it’s not the left which was being deluded about that. (I wonder if they bothered to report the Dow’s soaring move the following day… nah, I suppose not).

  • Kevin S.

    The market expected/predicted (incorporated in their models) weaker numbers on job reports and consumer spending recently and a thousand times in the past but it was only when those numbers were released did the DOW/Nasdaq etc fall.

    But those expectations/predictions are based on rumors and guesswork. After election day, Obama’s inauguration was inevitable unless he died prior to the 20th. That comparison is totally off base.

  • Neal J. King

    Whoever links stock-market jumps to Obama’s day of inauguration must think that stock traders are really stupid: The game is to anticipate how other people will react, and “get there first,” not to wait until it’s happening and then act.

    I’m also not thrilled with the tax cuts, as we seem to have learned from recent experience that monies given by tax cut go into saving rather than spending. But if this is what it takes to get a bit of Republican cover for the bill… that’s a political decision, and I assume Obama is better at those than me.

    Otherwise, if Republicans just won’t get with the program at all, and choose to try to make Obama (and America) fail instead of succeed, the alternative course of action will be to point out how busy they were tying together the shoelaces of the two feet instead of helping with useful ideas. If that message comes across, the Republicans will be in even a worse shape than before.

    It could go that way: with the Republicans led by Rush Limbaugh circling the wagons and shooting into the night. If so, it could go either way, but, as a non-fan of R, I suspect the probability is slightly greater that it will be Limbaugh’s balloon that leaks and sags into the swamp.

  • http://afcsoac.blogspot.com/ lisleman

    Thanks, but the media reporting and solid factual news are typically mutually exclusive. I’m always amazed of the reporting of a big number change in the DOW30 instead of the percentage change. Just basic math has a hard time in the media.

    Thinking of math – is this false correlation a “Black Swan” thing? I have tried reading that book but to be honest I gave up. Is there another explanation of the “Black Swan” concept/theory you could recommend?

  • Ja Muller

    The major reasons the market tanked on Jan. 20 was because British banks had to be bailed out again so everything fell in Europe and Asia for 2 days in a row while US markets had been closed on Monday(MLK) so it was two days of bad trading condensed into 1.

  • Mike

    The commentaries linking market performance to Obama have been annoying me too.

    They started with the terrible week the markets had following Obama’s election. What is not mentioned in these commentaries is that investment banks and financiers gave overwhelmingly to Obama over McCain. Either they support Obama’s politics over its effect on markets (in which case, perhaps we should take that as a cue) or they didn’t think Obama’s presidency would be relatively bad for markets or they wanted to donate to a winner, in which case markets shouldn’t have fallen after the election because they all thought he was going to win anyway as indicated by the fact that they gave him much more money.

  • harshpotatoes

    although i seem to remember somewhere that in general markets drop after the election of a democratic president, and that markets will rise after the election of a republican president. anybody else remember hearing something like this?

  • http://danielholz.com daniel

    as outlined by many commenters, there are lots of reasons the market tanked (and recovered). and they don’t have anything to do with it happening to be inauguration day.

    vocabulary cop, i use the term ‘apocryphal’ in direct reference to the claim that the cold caused his death. this is the way the story is usually presented, e.g., the NOAA page. and he was apparently trying to show how tough he was by not wearing a coat.

    harshpotatoes, i don’t see any sort of trend between market and presidential party (either at inauguration, or a year later) in the data presented in the table linked in the post above.

  • tacitus

    harsh, if you compare overall market performance under Democratic presidents with that under Republican presidents since 1929 — 40 years for both parties — the Democrats win hands down.

    Just take a look at this chart:


    Rather stunning really, and surprises a lot of people.

  • Toiski

    tacitus: What is the significance of the S&P index? What do similar comparisons for other indices look like? Averages of indices? From a layman’s point of view, that chart is not very helpful at all.

  • harshpotatoes

    Ah yes. Thanks Daniel. I missed that table the first round. Excellent. I heard that blip from a poli sci major once but never found the sources to back it or to argue it. Nice to know i have something to back up an argument against him now. :)

  • Slawomir Piatek

    To Neal J. King: tax cut = money NOT taken from those who earned it. Dig?


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