Northwest businesses post-election: Whither the markets?
The Dow Jones, between Wednesday and Friday of this week. Credit: Google Finance
So, was it the economy after all that was the deciding factor in the presidential election? Voters apparently saw some signs of life after the worst downturn since the Great Depression, rather than a failed economy after four years, to re-elect President Obama so decisively. Still, the market's reactions to 2012's election were unpredictable, spiking nearly 100 points on election day before crashing a full 300 the day after.
Generally, markets are relieved when an election is decisive. The market wants predictability, so when it does not get what it wants, it reacts. In 2000, when the election between George W. Bush and Al Gore took five weeks to settle, the markets dropped 5 percent. In 2004, when the race was not settled on election night, the Dow Jones Industrial Average slid 18 points. On Nov. 4, 2008, the market saw a new Obama administration that would address the financial crisis and deep recession. The Dow was up 305 points to 9,625.
This year was a little different. The Dow had a few good days in advance of the 2012 election, rising 133.24 Tuesday to 13,245.68, after a modest gain on Monday. But the day after the election, markets dropped sharply.
Most analysts said the market was putting the election behind it and now focusing on the rough road ahead. The U.S. economy faces problems in Europe, slowing global growth, stubbornly high unemployment and the so-called fiscal cliff.
Pacific Northwest-based businesses generally followed the overall market down. Most lost about 1.5 – 2.5 percent of their value in the day after the election, about the same as the market. The Dow lost 312 points or about 2.4 percent.
Boeing dropped $1.47 to $70.11, a 2 percent drop, joining other defense-related companies that saw their stock prices fall as well. A Romney victory was thought to be good for the defense companies because of increased military spending. On the retail side, Amazon.com lost $5.50 to $232.06, a 2.3 percent decline. Costco was off $1.49 to 97.30, a 1.5 percent slide.
Starbucks actually bucked the trend, though not by much. Starbucks was up 10 cents to $51.81. Another company to go against the overall market was Weyerhaeuser, up six cents to $27.29, likely a reaction to the improving housing market.
Take a close look at Expeditors International, which helps companies move goods around the world. It reported its third quarter earnings on Election Day with both revenues and profits down. It is a company that interacts with that global economy every day, so not a bad bellwether of how things are going around the globe. Expeditors lost 73 cents on Wednesday to close at $37.15, a 1.9 percent drop. Since that decline is close to the overall market drop, it is hard to make much of it.
Generally, markets have been down since the election, although trading Friday appears to be a bit more positive. Boeing, one of the 30 companies in the Dow Jones Industrial Average, is bucking the trend somewhat, gaining about $2 a share and is trading higher than it was on Nov. 5 before the election. Costco is also gaining back some of its losses, up about 85 cents on Friday.
What’s the market trying to tell us? Generally, the stock market looks ahead (it is one of the leading economic indicators) and tries to see what economic conditions will be like three- to six-months down the line. Like much of the economy, it is sending out mixed signals – up more than 100 points on Election Day, down more than 300 the next day.
Overall, the economy is sending out mixed signals too. Job creation is a bit stronger, but not nearly as robust as it needs to be. Housing prices are looking a little better. Prices are stable and interest rates low. On the downside are the international problems and that fiscal cliff, the automatic tax increases and spending cuts put in place by Congress. And many people are still holding back spending because of stagnant wages or concerns about jobs. With low demand, business does not have the incentive to invest in new jobs.
One of the largest factors in market movements is plain old psychology. How do you feel about the economy? Pretty good? Then you are more likely to invest in the market and help push stocks higher. Concerned? You’ll cut back and perhaps take that small gain in bonds.
Despite the ups and downs, most investors should be fairly happy with President Obama. Consider these numbers: The Dow on Election Day 2008 opened at about 9,320. On Election Day 2012 the Dow opened at about 13,112. That’s a gain of about 29 percent.
The New York Times had a good story on Wednesday about the impact of the election on business. Check the reports that both sides are talking compromise on the fiscal cliff issue – that means stocks will probably continue rise.