NCPA - National Center for Policy Analysis

Stock Decline And Presidential Popularity

August 10, 1998

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.

When the stock market falls by anything like the magnitude we recently seen, there is always a key reason. 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.

Events of the past few weeks, taken together, have caused markets to believe that the odds of a Clinton impeachment or resignation have risen dramatically in the last month. In 1973-74, 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.


Browse more articles on Economic Issues