Although my numbers are only approximations, the Obama administration appears to be getting very low marks from United States financial markets. During the two months from the November 2008 elections to the first week in January the Dow Jones Industrial Average declined about 5%. During the last 8 weeks, it has declined by 25%.
There is a theory that active traders in the stock market (or any other market that reflects expectations of the future) use all information at their exposure when making decisions about at what prices they are willing to buy and sell equities. This is a called the efficient market hypothesis. The idea is that market prices reflect all available information. Speculators use new information to change the prices at which they are willing to buy or sell any particular common stock (or bond or other financial instrument). Properly understood the efficient market hypothesis does not imply that prices always reflect all available information, rather it implies that prices move very quickly to reflect such information. The practical application of this to personal investing is that if I read the financial news every morning, reflect on it for a few hours, and then decide to buy or sell common stock based on what I have absorbed, unless I have some insight that noone else has, market prices will already reflect this news.
When looking at how the markets evaluate the Obama administration we can use the efficient market hypothesis because it implies that the decline in the stock market this morning (Monday, March 2) reflects new information, information that market participants did not have on Friday, February 27. Indeed, the entire decline in the stock market since President Obama's election implies that, taken as a whole, what President Obama has revealed about the kind of economic policy he intends to follow, has had a profound negative effect on the economy--and especially a profound negative effect on what equity market participants expect will happen to economic growth in the future.
The market is voting no confidence in the Obama administration!
There is a theory that active traders in the stock market (or any other market that reflects expectations of the future) use all information at their exposure when making decisions about at what prices they are willing to buy and sell equities. This is a called the efficient market hypothesis. The idea is that market prices reflect all available information. Speculators use new information to change the prices at which they are willing to buy or sell any particular common stock (or bond or other financial instrument). Properly understood the efficient market hypothesis does not imply that prices always reflect all available information, rather it implies that prices move very quickly to reflect such information. The practical application of this to personal investing is that if I read the financial news every morning, reflect on it for a few hours, and then decide to buy or sell common stock based on what I have absorbed, unless I have some insight that noone else has, market prices will already reflect this news.
When looking at how the markets evaluate the Obama administration we can use the efficient market hypothesis because it implies that the decline in the stock market this morning (Monday, March 2) reflects new information, information that market participants did not have on Friday, February 27. Indeed, the entire decline in the stock market since President Obama's election implies that, taken as a whole, what President Obama has revealed about the kind of economic policy he intends to follow, has had a profound negative effect on the economy--and especially a profound negative effect on what equity market participants expect will happen to economic growth in the future.
The market is voting no confidence in the Obama administration!
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