Opinion Editorial | |
| Monday, August 10, 1998 | |
Stock Decline and Presidential Popularity |
On July 17, the Dow Jones Industrial Average closed at a record level of 9338. Within less than three weeks, however, it fell by almost a thousand points, losing 300 points in just one day, August 4. Other markets have done even worse. The Standard & Poor's 500 index is down almost 10 percent, the NASDAQ index is down more than 11 percent, and the Russell 2000 index is off more than 18 percent. Of course, we all know that the market goes up and down daily, often for reasons that are unfathomable even to experts. But when the stock market falls by anything like the magnitude we recently seen, there is always a key reason. It may have to do with changed circumstances, such as a slowing of the economy or a change in Federal Reserve policy, or it may involve new information. A review of the press reports of the previous month strongly suggests that the reasons behind the market's fall are in the latter category. There has been no change in Federal Reserve policy, no change in the Asian crisis, and although it was announced that economic growth slowed in the second quarter, this fact was widely anticipated; in fact, growth was higher than expected. Therefore, there must be some new information that the market has been forced to digest that has turned it sour. Of all the information that has become known in the last month, clearly the most significant, from the market's point of view, is the tightening of the noose around Bill Clinton. During this time we have seen the following: Secret Service agents have been forced to testify before a grand jury about the Monica Lewinsky matter, courts have rejected Clinton's efforts to block testimony by his White House attorneys, Clinton has been subpoenaed and agreed to testify before the grand jury, Lewinsky has been granted immunity, and the famous DNA-stained dress has been recovered and sent to the FBI for analysis. Taken together, these events have caused markets to believe that the odds of a Clinton impeachment or resignation have risen dramatically in the last month. This has aroused memories of 1973-74, when disclosures about Watergate coincided with a severe stock market decline. As President Nixon's popularity collapsed in 1973 with each new revelation about the Watergate coverup, so did the stock market (see figure). By the end of the year the S&P 500 index was down 20 percent, while Nixon's polls were down 57 percent. If history is any guide, therefore, the stock market may continue falling until there is a final resolution to the Lewinsky affair. Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, August 10, 1998. Home | Support Us | All Issues | Social Security Debate Central | Contact Us |
