Does Wall Street Love Obama?

Includes: DIA, QQQ, SPY
by: Doug Poretz

On Monday, March 22nd, the day after President Obama secured a victory that a few weeks ago nobody said he'd achieve, Wall Street rewarded that victory with a 43 point gain on the Dow Jones. Assuming Wall Street despised Obama and his ideology, often characterized as "socialist" in approach, wouldn't the market logically would have gone down? After all, regardless of what anyone thinks of the healthcare bill that was passed by the House on Sunday, the President's political victory strengthens him, not weakens him, and thus puts Wall Street's ideology at even greater risk.

The market's gain isn't all that surprising, however, when you realize that Wall Street loves Obama. On November 4th, 2008, the day after Obama won the presidential election, the market closed at 9,131. Since then, the market has gained about 17 percent. But until Obama was actually inaugurated in January 2009, the nation's economic policy was still being set by George W. Bush and his Secretary of the Treasury, Henry Paulson. Republican policies established during the 12 years they controlled the Congress (which ended in 2006) were still the driving economic forces. At the close of the first day of Obama's actual presidency, the DJIA closed at 7,921; since then, the market has surged about 36 percent.

If the market moves on expectations, then a move of 36 percent must mean only one thing: investors believe things are going to get better, not worse. Wall Street pundits and players may love to rant about the danger of the Obama Presidency, but their investing activity is saying that they love him.

Now the question is: What is more important to investors, a tax increase that is likely to hit the wealthy in a few years or a continuing surge in the market? I think investors would take a 36 percent growth in the value of their investments in less than 15 months and be glad to pay an increase in taxes. They'll complain about the taxes, but they'll love the market, and Obama will be the political beneficiary.

What is that likely to mean? Yesterday, when the nation adopted, for all practical purposes, a changed healthcare structure, the sky didn't fall; it isn't going to fall tomorrow either. And within a few months, not only will the sky still be where it has always been, but people (read "voters") will start to see some improvements as a result of the new system.

Some improvements plus no disaster will equate into the conclusion that what Obama wanted was good and all the catastrophe the Republicans (not one of whom supported the new legislation) said was going to happen was BS. Obama will be seen as standing up for what he believed to be important, rather than retreating as George W. Bush did when he attempted to change Social Security. That will make Obama stronger and the Republicans weaker. Given recent history, that should be good news for the market.

But Obama's healthcare victory will have other consequences. His entire agenda now picks up momentum: consumer rights, regulation of banking and financial services, the environment, the nation's educational system, etc. These won't be minor issues and the proposed changes won't be playing around the edges. The proposed changes will be fundamental and, if adopted, long-lasting.

When was the last time a Presidency was able to push through an entire political agenda of such significance? I think we can look at what FDR accomplished during his push for the "New Deal" policies and the impact those policies have had on the nature of the United States and its political landscape for more than half a century. By the way, since 1900 the only president who had a better first year record as measured by the DJIA improvement was FDR, whose liberal political agenda Wall Street also despised. The market increased by more than 60 percent in his first year in office, which compares to a first year gain of almost 19 percent in Clinton's first year and a loss of almost 11 percent in Reagan's first year.

Disclosure: No positions