Scandal And The Stock Market
I don’t need to tell you that a Scandal has captured our national leadership. Recent disclosures include improper custody of Top Secret Documents, questionable business ventures with foreign powers, and the troubled behavior of a wayward son.
Scandal always presents an ordeal for the nation. The President’s supporters generally try to dismiss any accusations as false, perhaps a “Russian Hoax.” In contrast, the opposition to the President will likely paint the missteps as part of “High Crimes and Misdemeanors,” a justification for Impeachment.
We’re a long way from either of those eventualities. But whichever direction this particular Scandal takes, somewhere between hoax and Impeachment, we can be sure that the Scandal’s impact has already been felt on Wall Street.
Wall Street always looks into the future (those “forward-looking statements you read about), and the current Administration is one of the most considerable influences on our lot.
In the next few months, the Administration will need to meet the challenges of a potential recession, finance the nation’s escalating Debt, and manage and propose a galaxy of rules and regulations. Rules and Regulations can range from the ridiculous, should we outlaw gas stoves? To the impactful, which industries or sectors should the government provide tax breaks and incentives to?
Undeniably, the policies emanating from Washington are vital to all Wall Street future estimates. From tax policies to outright subsidies, Washington has become an essential cog in our financial economy.
It will come as no surprise, then, that Wall Street hates these Washington Scandals passionately. From the moment the Scandal hits, the country’s future becomes uncertain. I saw this for the first time with the Watergate Scandal in the 1970s. From the time that Scandal broke, early in 1972, for the rest of that Presidential term, that Administration was in lockdown, a lame duck unable to accomplish any of its initiatives.
The country was in limbo, with no leadership at the top.
This time was simply a disaster for the financial markets, culminating in one of the worst bear markets of the twentieth century. The Dow Jones Industrial Average fell by nearly 50%, and the average stock, including NASDAQ and the other regional exchanges, saw 60% or more declines.
Public investors left the markets in droves for ten straight years; mutual funds went net redemption (more sellers than buyers). The Dow peaked in 1972 but only surpassed that level again ten years later, in 1982.
While we can’t put all the nation’s woes on Richard Nixon and the Watergate Scandal, it was a major contributing factor. The trigger, if you will, ignited an already unstable financial situation.
The US faces constant financial challenges as one of the world’s largest and most dynamic economies.
We cannot afford an Administration “on hold” for the next couple of years, like the Nixon Administration. Current major economic issues before this Administration include: How to curb inflation without falling into recession? How to move a significant manufacturing base back on shore? And thereby help reduce “Supply Chain” issues. How to manage the financing of the largest Federal Debt ever? How to increase a civilian workforce that is falling behind the increase in the population. Fewer workers for more people.
And those are just a few of the economic issues we’re facing. They do not include such Geo-Political Issues as dealing with Ukraine, China, and Russia.
Unfortunately, if history is our guide, all of these issues, and more, will likely be set aside. Problems that will need to Wait for the next Administration to handle. Because once the public’s attention turns to the Scandal, little can be accomplished. The Administration focuses instead on how to put out the Scandal.
Washington came to a halt. Of course, the Administrative State continued, but new policies and positions were halted. Stories abound of how President Nixon wandered the halls with nothing to do in those last days before he resigned.
We are very close to that point today.
Look for many in Washington to begin to work around the President. They will try to accomplish new initiatives away from the Oval Office. Look for Congress to become more assertive, as they’ll sense weakness at 1600 Pennsylvania Avenue.
Those new tax proposals or environmental regulations will probably not see the light of day this term. For investors, we’re likely to see the status quo continue until the next election. It’s hard to imagine more inertia in Washington than a President mired in a Scandal and a divided Congress. But that’s what we’ve got.
If you like how things are today, you’ll love the next couple of years. Washington is going into the deep freeze.
Follow me here on Medium for more stories on money and finance.