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04.09.2012

Short analysis - Monika Rosen, Chief Analyst, Bank Austria Private Banking
Obama and the stock market – an involuntary success story

  • Dow Jones up by more than 60 percent since President Obama took office
  • Yet Democrats will not be able to use this as an election-year slogan
  • "Most-hated rally of all time" – in recent years the vast majority of Americans have reduced stock holdings in their pension plans.

The Democratic National Convention takes place this week in Charlotte, North Carolina. As expected, Barack Obama will be installed as the Democratic candidate for the forthcoming US presidential election in November.

The state of the economy and the labour market in particular is a crucial topic for both parties in the USA just now. After all, the US unemployment rate is still high enough that the chairman of the US Federal Reserve, Ben Bernanke, felt compelled to hold out the prospect of further monetary policy measures to stimulate activity. The labour market is proving to be a real area of concern for him just now, as Bernanke recently revealed. The real estate market is not a joyful place to be either, even if some stability does seem to have returned lately.

One ray of light in the first four years under Obama, ironically, is the stock market. Since Obama took office the Dow Jones has risen by more than 60%, which is the best performance for a US President since the 1950s! In the past, such growth has always resulted in a clear victory for the incumbent president at the next election.

You would think that the Democrats would use this very fact as a slogan for their election campaign, but not necessarily. On the one hand, Obama has viewed the financial sector and therefore Wall Street as a kind of "favourite foe" from the very beginning.  What is more, this marvellous development in share prices over the last four years has only benefited a very small group of people in the USA. In recent years the vast majority of Americans have significantly reduced the stock holdings in their pension plans (401 K). This gave rise to the bizarre phenomenon that many small investors exited the stock market (in the USA too) even though it was shooting upwards. Some on Wall Street are already talking about the "most-hated rally of all time".

So in the run-up to the election, Obama currently finds himself in the unusual position that he is barely able to use his biggest trump card – namely the outstanding performance of share prices – without having to deliver a whole host of supporting explanations as well. And investors? Only a few would credit the good performance to Obama himself. The driving force behind the rally has rather been, and still is, the loose monetary policy adopted by the Fed. And based on the latest statements from Bernanke, this lax policy pursued by the USA is not likely to change anytime soon either.

Enquiries: Monika Rosen
Chief Analyst at Bank Austria Private Banking
Tel. +43 (0) 50505 - 40104
E-Mail: monika.rosen@unicreditgroup.at 

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