The Barack market decline

Opinion Journal:

The voters may be full of hope about the looming Obama Presidency, but so far investors aren't. No President-elect in the postwar era has been greeted with a more audible hiss from Wall Street. The Dow has lost 1,342 points, or about 14%, since the election, with the S&P 500 and Nasdaq hitting similar skids. The Dow fell another 4.7% yesterday.

Much of this is due to hedge fund deleveraging, as well as dreadful corporate earnings reports and pessimism that the recession will be deeper than many had hoped. We also don't want to read too much into short-term market moves. But there's little doubt that uncertainty, and some fear, over Barack Obama's economic agenda is also contributing to the downdraft.

The substance of what Mr. Obama has promised for the economy is bearish for stocks. The threat of higher tax rates, especially on capital gains and dividends, now may be getting priced into the market. Add that to investor doubts about Democratic policies on unions, health care and trade -- and no wonder stocks are falling. Lower stock prices in turn reduce household net worth, thus slamming consumer confidence and contributing to what appears to be a consumer spending strike.

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All of which raises the question of why most of Wall Street was donating their money to Democrats in general and Obama in particular during the election. They were like chickens donating to Col. Sanders.

While their financial contributions were substantial, their biggest gift was the debacle in the financial markets caused by a failure of risk analysis in the mortgage backed securities markets which has had a cascading effect in other markets. I think the polling will show that the seizure of the markets shortly after the Republican convention had put McCain ahead turned the election for Obama. It is hard to imagine worse timing by people who pride themselves on mastering timing.

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