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Wall Street looks to the White House to inspire confidence after wild week
Investors will return to trading floors Monday morning braced for another wild week, and some are looking to the White House for a calming effect.
The month of August has hosted historic levels of volatility in the stock market, as major indexes have swung wildly back and forth from day to day.
As he struggles with a divided and contentious Congress, investors are looking for Obama to step in, take a stand, and serve as a steadying force for fragile markets.
“What the markets want, we want to hear that the president is concretely for certain policies, not ‘We’re going to look at it,’” said Andrew Busch of BMO Capital Markets. “Unless he changes his tack on this, the markets are going to continue to go down.”
The only thing consistent about the stock market in August has been inconsistency. The Dow Jones Industrial Average dropped roughly 400 points on Thursday, after climbing by about the same amount on Monday. The blue-chip stock index at one point swung back and forth by 400 points for four straight days – something that had never happened before in the index’s 115-year history.
The primary driver of that volatility is concern about the economy, as report after report depicts a lagging recovery. Another part of the problem for Obama is that much of the heartburn on Wall Street is coming from abroad. The European debt crisis has served as a hefty anchor to the stock market in August, as leaders across the ocean struggle to find a way to stem the tide of red ink.
The president initially dipped a toe into the market turmoil on the first day of trading following the nation’s downgrade at the hands of Standard & Poor’s. He addressed the nation in the middle of a brutal Monday for investors, reiterating that the U.S. “always will be a AAA country” no matter what S&P thinks.
That effort was met by the president’s image running side by side a plummeting Dow, which ended the day down 634 points. Since then, the administration has avoided weighing in on the market’s violent fluctuations, while reiterating its focus on the broader challenges facing the economy.
However, the White House has made a point to indicate that even as the president vacations at Martha’s Vineyard with his family, he is still receiving daily economic updates from advisers.
With so much uncertainty gripping the economy, Obama’s potential to serve as a steadying force becomes much more vital.
One area in which the administration could make a mark is in finding a way to buoy the confidence of the American people.
“One of the places they can have the biggest impact is consumer confidence,” said Scott Talbott, senior vice president at the Financial Services Roundtable.
Boosting confidence makes for a self-fulfilling prophecy of sorts, as a more optimistic public will spend and consume more, which in turn will boost the economy they used to be worried about.
However, it also can prove tricky, as the president will need to intangibly alter the perception of a public keenly aware of the economic strife gripping the globe. Rhetoric will be the key.
Busch contends that Obama needs to make a firm stand on the big issues that may face Congress this fall, like large deficit cuts or broad tax reform. Even if it ultimately proves to be a losing effort, some concrete plan to look to will be appreciated by the markets.
“The president needs to come out and put a stake in the ground and say ‘This is where I stand,’” he said. “That would be the biggest thing he could do, and quite frankly, I don’t know why he hasn’t done it already.”
It looks as if the president will take a step in this direction in September, when he rolls out a new plan to reduce the deficit, which will also offer several stimulus measures and tax breaks intended to get the economy moving again. The president will present the plan to the congressional supercommittee charged with finding at least $1.2 trillion in deficit cuts by Thanksgiving.
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