Was Obama to blame for Wall Street's hit this week?

Steven Loeb · November 9, 2012 · Short URL: https://vator.tv/n/2ba2

Looming fiscal cliff and Euro zone crisis are also contributing factors

The Dow Jones Industrial Average and the S&P 500 both took hits on Wednesday and Thursday, including a slew of Internet stocks such as Zynga, Shutterfly, Yelp, Trulia and Zynga, igniting some speculation that it may have been part of a broader trend of Wall Street reacting to the reelection of Barack Obama on Tuesday.

On Thursday, LinkedIn shares fell the most in three months, going down 4.8 percent to close at $96.35 a share. In response, Aaron Kessler, an analyst at Raymond James & Associates, told Bloomberg that the reason that LinkedIn shares fell so sharply was because of Wall Street skittishness over Obama’s win.

But does this theory make sense? And why would it be that Obama being reelected would cause a sell off?

What’s on Wall Street’s mind right now

It is true that there is no love lost between Obama and the Wall Street crowd. After all, he did once call them “fat cats” and there is also the Dodd-Frank Act, which imposes stricter financial regulations. But there are other reasons that the market took a hit on Wednesday and Thursday, though does this theory make sense? 

Firstly, there is the so-called “fiscal cliff.” As part of the deal made in 2010 to raise the debt ceiling, both sides agreed that if they could not come to an agreement that automatic tax increase and spending cuts would go into effect in January of this year.

Wall Street has reacted nervously to the prospect of going over the cliff, feeling like it may lead to a rise in unemployment and lead to a recession, but not all analysts agree that it will result in such drastic problems, at least not right away.

“Some analysts believe that the fiscal cliff is more like a fiscal slope and that the economy could weather a short-term expiration of the Bush-era tax rate and that the government could manage a wave of automatic spending cuts for a few weeks. But at a minimum, going over the fiscal cliff would mean delays in filing taxes and obtaining refunds and would rattle financial markets as the economy struggles to recover,” Fox News writes.

Also on Wall Street’s mind is the looming euro zone crisis. According to Reuters, Germany, which has Europe’s largest economy, is set to weaken over the next two quarters, while France, which has Europe’s second largest economy, is expected to slip into recession by the end of the year.

Then there is Greece, which is bankrupt, and awaiting yet another bailout from the European Union.

With those two major events looming, the Dow Jones Industrial Average was down 355.59 points on Wednesday and 121.49 points on Thursday, while the S&P 500 was down 33.74 points Wednesday and 17.02 points on Thursday.

And yet, despite those major worries, the Dow Jones Industrial Average is up nearly 65 points on Friday, while the S&P 500 is up over 11 points.

How are Internet stocks doing on Friday?

And while many Internet stocks were down earlier in the week, a lot of them have rebounded on Friday.

After suffering the big loss on Thursday, LinkedIn stock is trading up 0.78% on Friday, to 97.10 a share.

Shutterfly's stock is also up a slight 0.02% Friday, trading at $25.74 a share, while Yelp is up 1.13%, trading at $17.97 a share.

Trulia and Zynga are both still down on Friday, but the reasons for that go beyond the trends of the market.

Zynga has had a slew of problems this quarter, which led to it reducing expectations for its quarterly numbers. When those numbers then came in higher than expected, the stock jumped 15% but has gone down nearly every day since, partially because of analyst hesitations over Zynga's future prospects.

Zynga's stock is down 2.31%, and is trading at $2.11

Trulia's stock is down after it posted a net loss of $1.7 million in its quarterly earnings report Thursday, compared to $1.5 million in the third quarter of 2011.

Trulia stock was down 13% to $18.70 on Thursday, and has fallen another 7.08% on Friday, to $16.15 a share.


With the problems that would have existed whether or not Obama was reelected, plus the market actually going up on Friday, it seems a little silly to try to place the blame for a couple of bad days at the feet of the President.

(Image source: https://www.usatoday.com)

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