Dow tanks again, biggest two-day drop since 1987
posted at 6:13 pm on November 6, 2008 by Allahpundit
Share on Facebook | printer-friendly
I know what you’re thinking. But is it true?
“We’re a long way from the end of the economic challenges,” said Mike Morcos, who helps manage $1 billion at Old Second Wealth Management in Aurora, Illinois. “Earnings next year are going to be significantly lower and estimates are going to continue to come down.”
The Standard & Poor’s 500 Index fell 5 percent to 904.88, extending its two-day loss to 10 percent. The Dow Jones Industrial Average retreated 443.48 points, or 4.9 percent, to 8,695.79. The Russell 2000 Index of small U.S. companies declined 3.7 percent to 495.84. The MSCI World Index of 23 developed markets lost 5.9 percent to 925.09…
About 481,000 workers filed initial jobless claims last week, the Labor Department said today in Washington, exceeding the 477,000 projected by economists surveyed by Bloomberg News. The number of people staying on benefit rolls was the most since February 1983…
Earnings at companies in the S&P 500 that have reported third-quarter results fell 9.2 percent on average, Bloomberg data show. Analysts expect full-year profits to drop 7.7 percent, according to a compilation of analysts’ estimates.
Consumer spending was way down in October too, which means holiday sales should be in the toilet. A few of our diehard Obama-haters were asking in another thread why this very important news confirming that The One is economic poison hadn’t been posted at HA yet. Answer: Because my ignorance of finance is so total that I can’t give you an intelligent estimate of how much blame he bears. Those whose ignorance isn’t as total can do me a solid, though, by explaining something to me. Given that these massive fluctuations have been par for the course for the past two months; given that, per the CNBC article I linked, some analysts think the economic forecasts are dire enough to drive the Dow below 7,000; and given that Obama’s likelihood of winning the election on Monday and Tuesday, when we saw big gains, was upwards of 95 percent and had therefore already been priced in (mostly), what reason is there to believe that his victory played some huge role here? And what conclusion do we draw if it swings back 300 points tomorrow or next week?
The fact that the market’s been rocked harder than it has in 20 years in the two days after his election does seem a tad too nuanced to be coincidence, but we were already off 40 percent from last year’s high a few weeks ago and the long-term economic forecasts remain roundly dire. It’s not like there isn’t another trend that can explain this result. Exit quotation via Megan McArdle, a woman after my own pessimistic heart: “If the crisis is as bad as some people fear, Obama will have no magic bullet to fire at it. The very best he can hope for is a fairly successful process of trial and error. To the electorate, that will look like bumbling as Rome burns.”
Update: Pethokoukis calls it “an Obama correction.”
You must be logged in to post a comment.
Blowback
Note from Hot Air management: This section is for comments from Hot Air's community of registered readers. Please don't assume that Hot Air management agrees with or otherwise endorses any particular comment just because we let it stand. A reminder: Anyone who fails to comply with our terms of use may lose their posting privilege.
Trackbacks/Pings
Trackback URL
Comments
Comment pages: « Previous 1 2 3
The market may have been down this hard during the last two days if McCain had won.
But you KNOW that the news stories wouldn’t have been bragging about an “election day rally” on Tuesday if McCain had been ahead in the polls!
blink on November 6, 2008 at 8:11 PM
You’re conveniently ignoring that it’s in context with a presidential election. THAT is what is unprecedented about it.
Find another election in US history that produced a remotely simliar result in the market. Look at what the market did after confirmation of Republican majorities in the ’90’s. We had moonshot rallies. Obama wins and the market’s in the shitter by 10%. And it deserves to be in light of the plans Obama appears to have in store for us.
Django on November 6, 2008 at 8:12 PM
The average Bubba probably doesn’t care if the markets are down so long as gas is under $2.50.
droofus on November 6, 2008 at 8:14 PM
The stockmarket is a reflection of consumer confidence. If that is effected by an event (such as a hurricane or rise in oil prices) then yes you can say that the Obama election has had a negative effect on how pessimistic people veiw the stock market in the future.
William Amos on November 6, 2008 at 8:14 PM
The average Bubba probably doesn’t care if the markets are down so long as gas is under $2.50.
droofus on November 6, 2008 at 8:14 PM
you think the gov seeing that we will pay $4.00/gal is not going to raise taxes on gasoline? And with no new supply coming on market as soon as the economy picks up again if it ever does gas will shoot up again to $4.00/gal quickly
unseen on November 6, 2008 at 8:16 PM
All I know is that I have now decided to put off a couple of big purchases I have been saving for. Just in case I need that money to weather any economic storms that are coming this way. Obama said he wants to bankrupt coal, the big 3 auto makers were on capitol hill today asking for a 25 billion dollar loan, and the three democrat leaders in Washington come January all have no interest in getting gas prices lower.
Hog Wild on November 6, 2008 at 8:17 PM
What was the VIX at during those previous elections?
dedalus on November 6, 2008 at 8:23 PM
Who the f— cares and what possible relevance does that have to the topic at hand?
Django on November 6, 2008 at 8:29 PM
Memory jog: Clinton in 1993-”I never worked so hard to try and give you a middle class tax cut but I just could not make it work”
Obama in 2009-”F*** you. We’re taking all your money. You don’t need it”.
Man, how times have changed.
dragonash on November 6, 2008 at 8:30 PM
Seeing that the Vix was introduced in the mid 90’s and VIX futures have only traded since ‘04, I’m thinking you’re a sophomoric poseur for asking.
But thanks for playing.
youngjim on November 6, 2008 at 8:33 PM
“what reason is there to believe that his victory played some huge role here?”
Ever consider when you paint a big red X on someone as a target that they just might move?
Kinda sorta makes it harder to hit them ya think?
Think folks with money are removing theirs before Obama gets a chance to confiscate it?
DSchoen on November 6, 2008 at 8:34 PM
Think folks with money are removing theirs before Obama gets a chance to confiscate it?
Is it possible that people with money have been quietly moving their money out as it became clearer that Obama would win?
DSchoen on November 6, 2008 at 8:37 PM
Indeed, and the formula for its calculation was changed several years ago so ’90’s levels would not be strictly comparable to today’s levels but I guess he’s trying to look like “a egspert”.
Django on November 6, 2008 at 8:37 PM
The Next New Chant: “No, We Can’t!”
Obama will still be prepared with a grand solution for all of our problems though. He’s relishing taking command of a sinking ship, and he’s not going to go down as an incompetent bumbling mortal man. He’ll make big changes with the goal of making the history books of the authors like Bill Ayers and other mentors. If you don’t know anything else about him, just know that. And then know this about the economic problem we’re facing:
econavenger on November 6, 2008 at 8:39 PM
Traders care since it reflects the premium they pay for volatility. It’s relevant to the topic since it indicates how wide the trading range of the S&P is likely to be. Normal might be 15, lately its been around 70.
dedalus on November 6, 2008 at 8:41 PM
I never thought in a million years that a person would win the president campaign by reading a childrens book of the little engine that could. I think I can! becomes Yes we can!
unseen on November 6, 2008 at 8:42 PM
Volatility doesn’t have to be traded to be calculated.
dedalus on November 6, 2008 at 8:44 PM
econavenger,
Great link thanks
thomasaur on November 6, 2008 at 8:46 PM
I don’t want to hear anyone complain about their 401K if they voted for Obama. They get what they deserve PERIOD
gophergirl on November 6, 2008 at 8:49 PM
One thing to also consider is the release of possible cabinet positions..
The most notable is Robert Kennedy for the EPA.. he will be a scourge on business and likely adopt/implement Kyoto type controls despite being shown to have been failures in the EU…
He’ll also implement Obama’s coal strategy..
Money is moving out for several reasons and this I’m sure has quite a few backsides puckered because is such a flaming wackjob idiot…
theblacksheepwasright on November 6, 2008 at 8:53 PM
The reason that the market fell the last 2 days is because no one knows what the heck Obama will do. He sure didn’t tell us during the campaign so we have to wait and see as his proposals. We will get an idea as he names his cabinet and the people around him if they have track records. Obama is there for the glory, someone else or a group of people will be running the country. He does not have a clue!
Vince on November 6, 2008 at 8:58 PM
You can use VXO for the old method or use a “reconstructed VIX” from the CBOE which goes back to 1990, and gives you the Clinton & Bush elections as well multiple mid-term elections.
Volatility is more of an intro than an advanced topic in investing, at least you better know something about it before trading an option. I’m not an “egspert”, but think the volatility measure is key to discussing a thousand point Dow swing.
dedalus on November 6, 2008 at 9:00 PM
I have already found an alternative for 401Ks. There are opportunities coming based on what “changes”, if any, are made.
Vince on November 6, 2008 at 9:01 PM
“Unseen… that’s pretty funny. Policies take time to put into law and to have an effect on the market. Many don’t have any impact on markets.
…This has little to do with Obama or calculating on fiscal policy which has not been formulated or even put into practice.
lexhamfox on “
Wow you must of gone to collage and everything cuz your statement sounds like you live in a paper world, (it works on paper).
Realty is people, real people looking at the man, what has he said, what has he done and do “I” trust him.
You won’t find that on paper.
It looks like people trust that he will raise their taxes, penalize success and generally “spread the wealth” or what’s left of it.
If that’s the case expect people to pull their money out of the markets.
DSchoen on November 6, 2008 at 9:02 PM
2010 slogan:
“Have you had enough hope and change yet?”
unseen on November 6, 2008 at 9:04 PM
You are confusing implied volatility with historical volatility. The VIX measures the implied volatility of near term S&P500 options. It does not measure the actual historical volatility of the S&P500 or any other financial instrument.
Django on November 6, 2008 at 9:13 PM
I think you’re splitting hairs, here. Well, not splitting hairs, but not giving an inch. We all know that the VIX (or any implied volatility of options) tends to move with the actual variation in the underlying. While one doesn’t describe the other, there are pretty rough estimates that can be made. Of course, there is the emotional content of implied volatility, which may not depend on any actual movement in the underlying, and there may be pressure from some big customers on the options themselves … but I have found that the implied vols often track real volatility in the underlying, at least in a rough estimate.
progressoverpeace on November 6, 2008 at 9:20 PM
My only question to all of this is AllahPundit: I admit you knew the numbers and how this election would go.
what I don’t think is that you get WHY…
If you were the total realist they say you are, you would be telling us the truth about how bad it is going to get under a man that has admitted to wealth redistribution as a legitimate function of state, has declared war on the energy business and has already promised to decimate a major industry of the states that gave him the win: coal.
For those living in the neverland of “we don’t know what he is going to do,” I say, why the H**l not?? He has already TOLD you! Pay attention, because folks he means it.
Noelie on November 6, 2008 at 9:20 PM
Traders care since it reflects the premium they pay for volatility. It’s relevant to the topic since it indicates how wide the trading range of the S&P is likely to be. Normal might be 15, lately its been around 70.
dedalus on November 6, 2008 at 8:41 PM
looks like a duck…..Obama gets elected
quacks like a duck….Market tanks 10% coal stocks tank 30+%
It is a duck…Obama causes market and coal stocks to tank.
Is there other factors involved? maybe. Did they play a part maybe. But the fact is that we had the worse postelection selloff in history. It was Obama’s fault. he bought it, he owns it.
unseen on November 6, 2008 at 9:23 PM
I haven’t read the thread yet, just the article, so I apologize if I sound ignorant (which we all are to some degree).
In my experience, the stock market is most often a fortune teller, with actual revelations receiving only a modicum of attention since the event had already been factored in (excluding “black swan” events). I.e., the market was already “betting on the outcome”; the smart money bet was in.
Long story short, I believe at least part of the market drop is due to the realization that McCain was a weak candidate in a weak position against a “hopey changey” type of opponent. Notwithstanding all the crappy loans and leverage.
I think we are seeing the Obama correction. Hopefully, we are forming a base here.
But I ain’t betting the farm quite yet.
rat
riverrat10k on November 6, 2008 at 9:23 PM
It is forward looking, that is why I said it indicates how wide the range is likely to be, rather than how wide is has been. The past doesn’t predict the future, nor can anything else, but the “fear premium” indicates how expensive it is to insure against future price swings.
I haven’t spent time comparing historical volatility calculations against implied volatility numbers but have heard of some traders who look for arbitrage opportunities when there is a spread. Sounds interesting, but outside my scope.
dedalus on November 6, 2008 at 9:24 PM
Actually, if you are familiar with childrens books and TV, “yes we can” is the motto of Bob the Builder.
Go figure.
todler on November 6, 2008 at 9:25 PM
Hog Wilds comment is excellent
riverrat10k on November 6, 2008 at 9:29 PM
Every day market analysts apply the headlines to the days trading results. Market is up 500 points and they grab some good headlines. Market is down 500 points and they graby some bad headlines. I guess it gives the interns at CNBC something to do, but the cause & effect is sometimes doubtful.
Look at the bright side, stocks are cheaper today than two days ago and maybe a steep sell off will make Barry rethink some of his socialist policies. You are right that “he owns it”, hopefully he won’t want to screw up what he now owns.
dedalus on November 6, 2008 at 9:32 PM
Right on. At one point during the crash week, I believe the VIX hit all time record levels. I sold some covered calls with short expirations and received nice premiums.
riverrat10k on November 6, 2008 at 9:40 PM
Maybe the scorpion won’t sting that frog.
shazbat on November 6, 2008 at 9:44 PM
dedalus on November 6, 2008 at 9:32 PM
while CNBC may try to find a reason for the days moves the fact is that the market moves to narratives. Once a narrative gets started it continues to move to that narrative until new information disproves it or reinforces it.
This summer the narrative was $4.00/gas was going to wreck the economy.
Last year it was subprime.
This fall it was $4.00/gal gas causing subprime to become worse. Credit Crunch was the bnarritive from mid sept until last week. Last week the credit started to flow again. Stocks rallied. McCain gained in the polls stocks rallied more. Than came Tues nov 4th and the narrative changed again. Obama got elected. Credit crucnh no longer matter. now it is higher taxes coming, recession made worse by trade and tax policies, wealth fleeing to tax heavens. socialism coming to wall street. the selloff will continue until the narrative changes. Could be tommorrow with abetter than expected jobs report. could be when the dow hits 7,000 and the narriative changes to a bear market rally.
The fact is that the narrative of the market now is Obama election. Thus he is responsible for the selloff
unseen on November 6, 2008 at 9:50 PM
riverrat10k on November 6, 2008 at 9:55 PM
riverrat10k on November 6, 2008 at 9:55 PM
sure called a mattress
unseen on November 6, 2008 at 10:01 PM
Rice cookers for everyone!
BDavis on November 6, 2008 at 10:02 PM
And I mean from the peak, not the last two days.
rat
riverrat10k on November 6, 2008 at 10:04 PM
And fortunately, not so much by design, I am in a position to take advantage. Selling houses sucks but rentals are filling up. Pawn shops are booming.
Wheels within wheels.
riverrat10k on November 6, 2008 at 10:10 PM
Surely is has to be Obama’s fault too!
Monkei
Everything starting on Jan. 20, 2009 will, in fact, be Obama’s fault. You elected him, you own him!
George Bush got the sh*t end of the stick on everything. See how it feels libtard. The other side can play this game too. Only now, we also have Nancy and Harry to blame. You guys own it all, the economic mess, the wars, the hurricanes, tsunamis, locusts, crop circles, Russia rising, Putin invading Ukraine, Israel and the entire middle east, all the third-world shit holes, terrorism, illegal immigration policy, EVERYTHING. You wanted it, you got it. Eat it!
JAM on November 6, 2008 at 10:11 PM
:sure called a mattress
Hard to buy food with a mattress stuffed with paper.
:)
riverrat10k on November 6, 2008 at 10:19 PM
Because lots of wealthy Republicans were still holding out hope. Noe they’re taking their money and protecting it.
It won’t.
Griz on November 6, 2008 at 10:20 PM
Yeppers. Moving the wifes to the Muni-bond funds in her plans, hoping they won’t nationalize state obligations.
riverrat10k on November 6, 2008 at 10:30 PM
What a great time to cut my teeth on HA… Seems I signed up at the right time.
Not really much I can add here, lots of good posts. I can say this though. The company I work for (an insurance company) is in full panic mode. We are pulling cover on just about everything that moves. The thing that really makes me laugh about all this is that the worst has yet to come. Wait untill the emerging markets melt down, taking Europe with it. THEN things will get interesting!
Gatsu on November 6, 2008 at 10:42 PM
I’m not sure he believes it’s possible for him to screw up, no matter what evidence there is to the contrary. Hell, he openly wants electricity prices to be astronomical. Maybe he wants the markets in the tank, too. The worse things are, the easier it is to preach the gospel that The State needs even more power to fix them.
Blacklake on November 6, 2008 at 10:52 PM
OT, but I just saw a news story that gun sales are up 30-40% in NC.
bilups on November 6, 2008 at 11:09 PM
The market rallied on Tuesday because of early word that seemed to indicate positive results for mccain – word that turned out to be unfounded.
bilups on November 6, 2008 at 11:12 PM
I wonder who would play those numbers and won?
riverrat10k on November 6, 2008 at 11:37 PM
I was talking to a friend tonight here in VA. He is a venture capitalist type. He is purchasing more arms. He said a well-known local store had “sold out of all AR-15 style semi-automatic rifles.” People were lined up to get more arms and ammo.
riverrat10k on November 6, 2008 at 11:45 PM
A winner never cheats,..and a cheater never wins!
Americans will pay the price for obama’s “win”
christene on November 7, 2008 at 12:02 AM
Here’s a story/survey that the MSM made sure would not be heard by Joe Sixpack before the election: 74% of CEOs Believe Obama Would Be Disastrous for the Nation
electric-rascal on November 7, 2008 at 12:21 AM
Except we already know Obama’s energy plan is going to raise home energy costs and congress is just itching to make gas prices go up to get alternative energy in place that isnt efficient or competitive. As far as the credit crunch and Fannie Mae/Freddie Mac, dems were greatly responsible for that too. Lastly “redistribute the wealth” is what Obama believes in.
Dems own all three narratives—bad credit policy, bad energy policy, bad tax policy.
If Republicans can’t manage to gain seats in the midterms something is seriously, seriously wrong.
Opportunity Costs on November 7, 2008 at 4:22 AM
I think you’re onto something here. Narrative circa 2012: “When I took the oath of office, the Dow was 6000. Now, four years later, it’s all the way up to 7500, a gain of 25%! Can we talk about a 7500 Dow like it’s a great accomplishment? Yes we can!”
This one we need to start calling BS on in advance, as in TODAY.
RegularJoe on November 7, 2008 at 7:50 AM
Simple explanation: The smart money is leaving the country. This is first phase of capital flight. Any bank run starts with the insiders, their friends and the most informed.
A secondary reason for the slide is that investors are converting some paper losses into real losses to offset captial gains because they expect higher capital gains taxes in the future.
jerryofva on November 7, 2008 at 8:57 AM
Yes. The jobs numbers were terrible this morning and there will be more bad news between now and January. Obama will likely want to talk about the “Bush Recession” and the “Obama Recovery” if the market bottoms sometime in the next 6 months.
The problem is that any policies that Obama implements, no matter how inefficient, will likely be touted as successes based on the Dow level between now and 2012.
dedalus on November 7, 2008 at 9:06 AM
The problem with narratives is that they are subjective and everyone has one. They tend not to be quantifiable or contain predictive power.
Today’s narrative seems to be that the jobs numbers were worse than expected but that the market had already baked that in, so no big sell-off in the futures.
Maybe there will be a little bit of a test for the Obama narrative if he speaks this afternoon following his financial summit and the markets are still open.
dedalus on November 7, 2008 at 9:11 AM
Fair point. If it is in Obama’s nature to sting the frog, then he’ll drown. In that case, look for GOP seat gains in 2010.
dedalus on November 7, 2008 at 9:14 AM
This is economics 101 folks…Barack Chavez or Evita, as I like to call him, comes into power on the backs of a generation of unemployed entitlement babies, promises to fix everything by creating disincentive for people to work and nationalizing YOUR paycheck. His ignorance is born of a gross arrogance towards basic economic precepts. Money is leaving the market to go offshore just as your jobs will…why invest here when you all you end up doing is incurring all the risk on your capitol with no hope for reward, because after all, it’s patriotic to pay more taxes and give your hard earned money to someone else.
Add to this the fact that all of the Obama sycophants used the same growth assumptions about his economic and tax plan that were used to create the subprime disaster, and the fact that they never once mentioned that retirees and pensioners will end up paying more in taxes and you have the absolute perfect storm. People are going back to post depression “it’s safer under my mattress” logic. The Mayans may have been more correct in their calendar then you believe…that which will end in 2012 will be the age of greatness of this, our country
PatriotPete on November 7, 2008 at 9:39 AM
Obama’s tax policies (higher income taxes on the rich, higher capital gains and dividend taxes) will reduce the returns from saving and investing. There is simply no doubt that these tax policies will be very very bad for business, job creation, investment and asset markets of all kinds. It is foolish to think otherwise. These policies are bad ideas at any time. At this time, when re-capitalizing the world’s capital markets and financial system is absolutely critical, these tax policies will be beyond catastrophic. They are insane.
And so America commits suicide – all because it hates itself so much. Sad. Pathetic.
pussum207 on November 7, 2008 at 12:11 PM
Comment pages: « Previous 1 2 3