Financial markets have given their first review of President Obama’s jobs plan, but their analysis speaks more to their doubts about Washington than the White House proposal.

The Dow Jones Industrial Average and other stock market indices plummeted Friday, less than 24 hours after Obama unveiled his plan to a joint session of Congress. The Dow lost 303 points, or 2.7 percent, and the S&P 500 dropped by a similar percentage.

{mosads}Wall Street analysts said the freefall was caused primarily by uncertainty over economic trouble in Europe but noted that Obama’s speech had little countervailing effect.

Financial markets lost confidence in Washington policymakers’ ability to solve problems during the debt dispute, and they now doubt Congress will move a sizable package to stimulate the economy.

The biggest part of Obama’s proposal is  an extension and expansion of the payroll tax cut, something Wall Street likely assumed was assured of passage. While Republican leaders have signaled a willingness to consider the proposal, the payroll tax cut also has been compared to a sugar high by Rep. Paul Ryan (R-Wis.), the influential chairman of the Budget Committee.

Josh Bivens, an economist with the Economic Policy Institute, noted that Goldman Sachs and other forecasters had predicted an extension of the payroll tax holiday through 2012.

“There is an ingrained discount being attributed to whole package because dysfunction in the political system is now taken for granted,” said Daniel Alpert, managing partner of Westwood Capital, based in New York City.

Alpert says Wall Street has become much more skeptical of Congress’s ability to address the nation’s economic problems after the contentious debate to raise the debt limit, which resulted in Standard & Poor’s downgrading the nation’s credit rating.

He said investors “didn’t really think one or the other party would blow the place up” until they witnessed the brinksmanship of the debt-limit debate.

He said Wall Street assumes only a fraction of Obama’s package will become law.

“They’re haircutting it,” he said of investors’ expectations.  

While some conservative economists, including Sen. John McCain’s (R-Ariz.) adviser during the 2008 presidential campaign, Douglas Holtz-Eakin, have belittled Obama’s proposals, other economists have praised the proposal.

Mark Zandi, the chief economist for Moody’s Analytics, predicted in a memo Friday that Obama’s jobs plan would “help stabilize confidence and keep the U.S. from sliding back into a recession.”

He predicted it would add 2 percentage points to GDP growth next year, add 1.9 million jobs and cut the unemployment rate by a percentage point.

The left-leaning Economic Policy Institute made a similar forecast. Bivens predicted the plan’s new initiatives would raise GDP by 1.9 percent — to a total of 3.3 percent — and cut the unemployment rate by 0.5 percent.

Several Wall Street money managers, however, said Friday they viewed the amount of stimulus in Obama’s package as insufficient to have a major impact on the economy.

“Those of us really focused on the demand side of equation would argue that it’s nowhere near enough,” Alpert said. “It’s a step in the right direction but doesn’t have prospects for changing trend lines any time soon.”

Brian Gardner, senior vice president of Washington research at Keefe, Bruyette & Woods, said he was intrigued by Obama’s promise to work with federal housing agencies to help people refinance their mortgages.

But Gardner cautioned it would do little to boost the housing market because the program would be focused on homeowners struggling to pay bills instead of buyers looking for new homes. He voiced doubt about the size of the program because Obama devoted only one line in his speech to it.

Gardner said Wall Street’s reaction to the package was mixed because of concerns that Republicans will block much of it.

“Most people realize there are some proposals that won’t go anywhere,” he said and cited the president’s call to spend $140 billion on infrastructure.

Axel Merk, president and chief investment officer of Merk Investments, based in Palo Alto, Calif., said he expects the extension of the payroll tax cut to pass Congress.

But he thinks it will have a short-term impact and argued Congress would do more to help the economy by addressing the nation’s long-term fiscal outlook. He said the payroll tax cut undermined Social Security’s long-term solvency, which factors heavily into debt projections.

“The key concern is that we need to fix Social Security in the long term and this is taking the money from Social Security and paying for it later,” he said.

Merk thinks money would be better spent on education and job training.

Tad Devine, a Democratic strategist who worked on Sen. John Kerry’s (D-Mass.) 2004 presidential campaign, praised Obama’s speech for putting pressure on Congress to act without appearing overly partisan.

“I thought his proposals are good because they’re grounded in job creation,” he said.

Devine said the unemployment rate does not need to hit a certain rate by fall of 2012 for Obama to win reelection. But there must be the appearance of progress.

“I don’t think there’s a magic number,” he said. “I think there’s a lot of room for the president to win the reelection with a high unemployment rate if it’s going down and people think the future is going to be better for them.”

This will put pressure on Obama to pass elements of his jobs package beyond the payroll tax holiday as analysts do not believe the tax break by itself would drive unemployment much below nine percent.

House Speaker John Boehner (R-Ohio) was careful not to criticize Obama’s jobs package on Thursday but Republican insiders don’t think he will go for much of its content. 

“It’s more of the same,” said a strategist close to the House Republican leadership. “Republicans are playing nice-nice because they don’t’ want to get trapped into the argument, ‘See? If only we had passed the president’s proposals, the economy would be better.’”