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Obama clinches; Dow Jones Average drops 72 points in 9 minutes.--

At 1:23pm ET, an AP story was released, reporting that Hillary Clinton would concede tonight because Barack Obama has clinched the nomination. [Although I don't have the original timestamp for the more definitive AP story that their delegate tally showed that Obama had won, the earliest timestamp I've found so far is Breitbart's at 1:26pm ET. That may well be the more relevant trigger.]

At 1:23pm, the Dow Jones Industrial Average, which was at 12,493 and had been marking time for hours, immediately started dropping [at 1:25, it was at 12,483]. In 9 minutes (1:32) [after 1:23], it had dropped 72 points to 12,421. After another 23 minutes (1:55), it had fallen another 53 points, resulting in a 125 point drop in 32 minutes. It then stabilized, indeed rebounding a bit.

This is not a particularly large drop (it's less than 1%), but the probable trigger was much clearer this time than for market responses to other primary wins and losses.

UPDATE (3:25pm): In the comments below, several people seem to be attributing the sudden drop to Bernanke's speech. While such a delayed reaction is possible, the juxtaposition I noted seems more likely. Here are two stories from earlier today on the market's response to Bernanke's speech, which seemed to be positive:

Wall Street moves higher after Bernanke speech

3 hrs ago - Wall Street rose tentatively Tuesday as investors were torn between troubling fears about inflation and more reassuring signs that the U.S. economic downturn is nearing an end. Federal Reserve Chairman Ben Bernanke reiterated expectations that the economy will rebound during the second half due to interest rate cuts, Fed loans to banks and tax rebates. But, the Fed chief, in a speech via satellite to a conference in Barcelona, Spain, said the economy faces headwinds with rising prices for food and energy - a signal that interest rates will remain on hold.

Wall Street opens higher after Bernanke speech

5 hrs ago - Wall Street opened modestly higher Tuesday after Federal Reserve Chairman Ben Bernanke reiterated expectations the economy will improve later this year. After the central bank's recent interest rate cuts, loans to banks and tax rebates, the second half of the year should bring "somewhat better economic conditions," Bernanke said in a speech in Spain. The economy faces headwinds, however, and the inflation picture remains uncertain, he said, indicating that the Fed still intends to keep interest rates on hold.

Jake Walker (mail):
Trying to attribute the moves in the market to any particular news story seems silly to me. What proof is there that it was this, and not any of a hundred other stories also breaking about economic news, company news, etc., that caused the paltry drop?
6.3.2008 2:26pm
The Ace:
Most people (everyone but the staunchest Hillary supporters) had largely assumed that Obama had won the nomination already. He had a 10 shot lead on the 18th hole. Now today he just made the tap in to win.
6.3.2008 2:31pm
Dan Weber (www):
Actually, what happened at 1:23PM was closer to the story "Clinton absolutely denies dropping out of the race."

CNN

The incorrect "concession" news broke very early in the day.
6.3.2008 2:33pm
gab:
I guess Jim is saying that current market participants don't realize that stocks do better under Democratic presidents than under Republican presidents...

Also, Lehman is leading the market lower, so Obama must have it in for Lehmans Bros. Must be his obvious anti-Jewish bias...
6.3.2008 2:33pm
Thales (mail) (www):
Agreed. The capital markets may not be perfectly efficient, but no doubt had already priced in the outcome of the nomination, which has been about 99% certain for 3 months.

If I had to guess, it's likely the market was reacting to Bernanke's further signal (at about the same time) that the Fed is done lowering the federal funds rate because of inflation.
6.3.2008 2:33pm
dearieme:
So Hillary was in the pocket of the mega-capitalists?
6.3.2008 2:34pm
Brian Mac:

I guess Jim is saying that current market participants don't realize that stocks do better under Democratic presidents than under Republican presidents...

Nah, they're reacting to McCain's inevitable victory now that Clinton's out of the picture...
6.3.2008 2:45pm
Jiminy (mail):
CNN Bernanke link
and that was:

Last Updated: June 3, 2008: 1:16 PM EDT

There's your problem...
6.3.2008 2:46pm
ChillableHours (www):
I could not agree more. A pretty interesting article (at a site not known for politics) supports that the nomination has been sealed for a while.

http://chillablehours.com/2008/06/03/finally/
6.3.2008 2:46pm
E:
Yeah, the Bernanke story seems more relevant, somehow.
6.3.2008 2:47pm
ABC:
Post hoc ergo propter hoc - the refuge of a logically weak mind.
6.3.2008 2:49pm
R Gould-Saltman (mail):
Well, someone's going to need to figure out exact timing on this, since you can't even allege "post hoc ergo propter hoc" without knowing what's post- and what's ante-:

From the NY Times, as of 2:43 pm:

"The Associated Press posted its report at around 11 a.m., prompting an immediate round of blog posts and "breaking news" banners on cable focused on the report's lead that "Hillary Rodham Clinton will concede Tuesday night that Barack Obama has the delegates to secure the Democratic nomination, campaign officials said, effectively ending her bid to be the nation's first female president."

Within 20 minutes, the Clinton campaign had responded with this statement: "The AP story is incorrect. Senator Clinton will not concede the nomination this evening."

Speaking on CNN at around the same time by telephone, the campaign's chairman, Terry McAuliffe, said the AP was "100 percent reporting incorrectly."

Minutes later, the senior campaign adviser, Harold Ickes, called MSNBC to say the report was "inaccurate and wrong.''


So it looks like, unless I'm mis-reading times, and the market, that the drop is arguably in response to the denial....
6.3.2008 2:50pm
Brian G (mail) (www):
That can't be true. With all those new taxes that are coming from President Obama will a Dem-controlled Congress, our economy should be going gangbusters in no time. After all, tax-raising is the key to prosperity. Just ask the nearest liberal.
6.3.2008 3:02pm
A. Person (mail):
This post is bizarre. Do you really believe that before 1:23pm Wall Street wasn't certain that Obama would end up crossing the threshhold? Any child could have said so at any point in the past several weeks.
6.3.2008 3:09pm
EIDE_Interface (mail):
Yes we know the market hates Obama, what's new? He's an uber-socialist who wants to destroy the US economy.
6.3.2008 3:16pm
arthur (mail):
Lindgren, get your facts straight. The story was published earlier today, not at 1:23, and updated in no particular direction at 1:23. The site you link to gives the latest verison of the story, this blogger at the Atlantic linked to the same substance by AP at 10:57 a.m.

No need to even consider the absurdity of investors finding an AP report material, when the only relevant fact, that Obama will be the Democratic nominee, has been almost completely obvious since about April. Also no need to consider why anyone would assume Obama would be worse for the stock market than Clinton.
6.3.2008 3:21pm
ithaqua (mail):
"This post is bizarre. Do you really believe that before 1:23pm Wall Street wasn't certain that Obama would end up crossing the threshhold? Any child could have said so at any point in the past several weeks."

"Agreed. The capital markets may not be perfectly efficient, but no doubt had already priced in the outcome of the nomination, which has been about 99% certain for 3 months. "

To be fair, not everyone pays as much attention to politics as the junkies on this blog :) And Hillary, especially, has been working very very hard to convince people that the Democratic primary results are (were) uncertain and could go either way.

That being said, I'm pretty sure Thales is right, and the drop had more to do with Bernanke's announcement; I can't imagine, at this point, that Obama clinching the Democrat nomination matters much for investors (especially since he's polling roughly even with McCain).

And THAT being said, of course I'm going to try and use this story to discredit Obama. It's so emblematic of the results of a Democrat victory, and I'm a Republican first, after all :)
6.3.2008 3:21pm
Mikeyes (mail):
Did the market go back up when the Clinton campaign denied the story?
6.3.2008 3:26pm
TLV:
Anyone who thinks the equity market cares about whether Hillary is giving a concession speech tonight has clearly never spent any time on Wall Street. It's not clear that Obama is going to win in November, or get his economic plan if he does; hell, we don't even know what his full economic plan consists of yet. And you think equity traders (who are decidedly NOT politicos) are pricing this in already? Wow. Why is it that libertarian blogs, with all their faith in markets, always have the least understanding of how markets actually work?
6.3.2008 3:27pm
Dan Weber (www):
This post was made at 1:22pm. I think this post caused the market crash.
6.3.2008 3:41pm
Anderson (mail):
This post was made at 1:22pm. I think this post caused the market crash.

Actually, I think it was my decision to order unsweet, not sweet, tea at lunch.

Oops! Sorry 'bout that, Wall Street.
6.3.2008 3:48pm
Perry (mail):
Brian G - well SOMEONE has to pay for this trillion dollar war that we're stuck in, the next trillion dollar war with Iran that we'd no doubt get into with another Republican presidency and the horribly conceived medicare part D plan..

Its a shame that the main lessons learned by republicans during the Reagan/Bush 1 years were that war = money = political control. Now instead of the cold war and the war on drugs, we have the war on terrrrizzm and still the war on drugs.

What progress.
6.3.2008 4:02pm
byomtov (mail):
Actually, I think it was my decision to order unsweet, not sweet, tea at lunch.

Not sure about that, Anderson. It could mean sugar prices are headed lower. How would the market react? hmm?

Anyway, I agree with others that there's no surprise in Obama's clinching the nomination, hence no reason for a market reaction.
6.3.2008 4:07pm
Cold Warrior:
The Western USA press has a different take on it. From the Denver Post:


Markets Drop Sharply as Obscure Blogger Calls Attention to New Republic Article on Obama's Days as a Community Organizer: One-Note Act blogger claims he was simply provided a link to "favorable" viewpoint on Democratic frontrunner
6.3.2008 4:07pm
Andrew J. Lazarus (mail):
The S&P 500 has been almost exactly flat since Bush's first inauguration, struggling against all the bad news he generated day in and day out.

What a fatuous, ignorant post.
6.3.2008 4:18pm
Mary Katherine Day-Petrano (mail):
Anytime conservatives get all worked up about Obama, out comes all the whiny rhetoric. Now Obama's success is being blamed for a drop in markets? What a snively whine. Republicans need to get over it. It isn't obama that tanked today's marker, but instead ...

the financial health of Lehman Bros. Holdings!
Here

And THAT is an inevitable result traceable to Bush tax-cut- for-the-wealthy domestic policies that have destroyed the American economy.

Barack Obama will be elected our 44th POTUS, and will restore America to her former Greatness.
6.3.2008 4:23pm
Mary Katherine Day-Petrano (mail):
corr:
"It isn't obama that tanked today's marker" = . It isn't Obama that tanked today's markets
6.3.2008 4:24pm
Gaius Marius:
The S&P 500 has been almost exactly flat since Bush's first inauguration, struggling against all the bad news he generated day in and day out.

What a fatuous, ignorant post.


If you had the slightest inkling about the markets, you would know that the S&P 500 does not comprise even the entire domestic market, much less the global market. Anyone who has been diversied across the several asset classes of which the S&P 500 is but merely one class will have realized double digit returns since President Bush took office. However, something tells me that you would be unwilling to attribute such positive investment returns to President Bush.
6.3.2008 4:25pm
Oren:
well SOMEONE has to pay for this trillion dollar war that we're stuck in
For the sake of linguistic integrity, we should change "deficit spending" to "teenager tax" or "toddler tax" because that's more realistic. For instance:

By the CBO's estimate, McCain will run up a teenager-tax 3 times larger than Obama (according to their published tax plans).

Sounds a lot better already.
6.3.2008 4:30pm
Gaius Marius:
deleted
6.3.2008 4:30pm
Oren:
Link, for those interested.
6.3.2008 4:31pm
Gaius Marius:
For the sake of linguistic integrity, we should change "deficit spending" to "teenager tax" or "toddler tax" because that's more realistic. For instance:

Agreed. Better yet, change "deficit spending" to the "tax on the unborn" -- at least those lucky enough not to be aborted.
6.3.2008 4:32pm
Mary Katherine Day-Petrano (mail):
"So Hillary was in the pocket of the mega-capitalists?" ---->

Hopefully Hillary WILL NOT get the VP slot. All her campaigned conveyed to numerous Americans was how mentally ill she appears, and not in a way anyone sensible would want her anywhere near a Nuke hot-button. Really, this was not a campaign about black vs. woman, but rather Hillary would have been defeated by Obama's dog. I can think of other woman who would have been a better Presidential candidate, much more sensible and dignified, and would make an excellent VP choice -- for instance Speaker Pelosi.

If Obama does not pick Pelosi as VP, hopefully he will pcik Edwards.
6.3.2008 4:35pm
Mary Katherine Day-Petrano (mail):
corr:
"pcik"=pick
6.3.2008 4:36pm
Mary Katherine Day-Petrano (mail):
Gaius Marius
WROTE:
"Mary, the reason why the markets have lost their footing these past several months is due directly to Alan Greenspan's loose monetary policy, not President Bush's fiscal policies. There is a difference between monetary and fiscal policies.

As for Barack Hussein Mohamad Obama, he very may be elected the 44th POTUS, and probably even the 1st COTUS ("Caliph of the United States"). However, I hardly doubt that our aspiring Caliph is going to restore the United States to her greatness enjoyed under President Reagan but rather its decline experienced under President Jimmy Carter."


Gaius Areius, I stated Bush's "domestic policies," without making the distinction between "monetary" or "fiscal" policies. Greenspan was not the Presidential signatory of all those Republican-Gang-Of-14 tax cuts for the wealthy, Bush POTUS 43 was. The incessant tax cuts together with the unncessary trillion dollar preppie-War in Iraq took the American economy down ... right out of Alfred Hitchcock's How-To-Balance-A-Budget 101. The only thing missing was Tippy Hedron and The Birds.

Are you a member of the Bar? Why don't you show some respect to Barack Obama, and stop the ad hominem whiny racial stereotypic name-calling. What do you know abotu Caliphs, anyway? Have you taken any classes or obtained an education in history-politics-religion of the Middle East? Barack Obama is as American as apple pie, grew up as American as any child of a single mother, worked hard to put himself through college and law school, and, unlike some people who come to mind, truly deserved to be named editor of Harvard Law Review -- because instead of trampling civil rights, he upheld them.

Get a life, and get a grip because ...

YOU ARE GOING TO HAVE TO DEAL WITH IT!

BARACK OBAMA, POTUS 44.
6.3.2008 4:49pm
frankcross (mail):
I'm intrigued by Gaius theory about double digit returns since Bush took office. I wondered how he could do that. Multibillion dollar hedge funds are one way, but I doubt he has those. Then I figured it out, it must have been commodities. He invested in gold. But of course this means that the Administration made him rich by so weakening the dollar and the American economy that his gold investment skyrocketed. Or maybe Euros. Investing in Euros would have made you a lot of money under the Administration.
6.3.2008 5:13pm
SteveW:
According to Opensecrets.org, the financial sector has given more than 50% more in political contributions to Obama than to McCain. That is a better indication of the views of that sector than a small fluctuation in the stock market average that might be attributable to any number of events.
6.3.2008 5:14pm
Arkady:
Bo Diddley died yesterday, maybe the plunge was a delayed reaction.
6.3.2008 5:40pm
Thales (mail) (www):
Anecdotally, many financial professionals I know are impressed by Obama's and his advisers' grasp of economics and when (and when not) to regulate, and think that he will in general be a good thing for the functioning of the capital markets. SEC chairmen from the Reagan, Clinton and Bush II (Donaldson) administrations, plus Paul Volcker, all regulators respected across partisan lines, have endorsed or praised Obama. Economists of all stripes agreed with him on the half baked gas tax holiday proposal.
6.3.2008 5:50pm
Thales (mail) (www):
http://www.nytimes.com/aponline/business/AP-Wall-Street.html

The consensus for the day's activity seems to be that Bernanke's remarks, plus the Lehman announcement, touched off selling activity here, and more abroad, which rebounded again to here. Nary a mention of Obama.
6.3.2008 5:55pm
Kevin!:
This is an embarrassing post.

1. It's factually wrong. First because it attributes a single AP report to a (fairly standard) drop, and second, because it presumes that capital traders are idiots unable to read the news over the past several months. As if market traders sit by their phones, mesmerized by the AP ticker. This isn't a movie.

2. It's theoretically incorrect. Professor Bainbridge taught me about semi-strong Efficient Market Hypothesis in one single morning. Anyone claiming that this 'news' would surprise anyone such that a sharp reaction results would receive a 0 on that exam. Look, if anyone could reliably divine market reactions to easily predicted and incorporated events, then they would become instant millionaires. This is basic random walk.

3. It's boring and useless with no persuasive power at all. Seriously, who finds this useful information? I suppose the only people who might would be regular traders trying to rationally pick a candidate. But they would also know enough basic economics to have discounted this information weeks ago.

4. It merely repeats what Larry Kudlow is already peddling. Do something original.
6.3.2008 6:05pm
Cold Warrior:
I'm with Arkady on the Bo Diddley theory.
6.3.2008 7:03pm
Gaius Marius:
I'm intrigued by Gaius theory about double digit returns since Bush took office. I wondered how he could do that. Multibillion dollar hedge funds are one way, but I doubt he has those. Then I figured it out, it must have been commodities. He invested in gold. But of course this means that the Administration made him rich by so weakening the dollar and the American economy that his gold investment skyrocketed. Or maybe Euros. Investing in Euros would have made you a lot of money under the Administration.

Achieving double digits returns during the foregoing time period was really unremarkable. First, invest in asset classes that generally have low correlation to one another such as domestic equities, international equities, REITs, commodities (this includes gold and oil and even futures), domestic treasuries, corporate bonds, international bonds, and emerging markets. You can further slice domestic and international equities into small caps, mid caps, and large caps if you want. (By the way, if you are just starting out in investing, then use a life cycle fund that invests in the foregoing classes for you according to your target retirement date.)

Second, allocate your savings between the various asset classes based on your risk tolerance knowing that equities will give you greater return but also give you greater risk while it is vice versa with non-equities. Personally, I have 20 and 1/2 years before retirement so my current allocation is roughly 25% non-equity funds (treasuries and bonds) and 75% equity funds. My equity allocation is further divided into about 25% domestic large caps, 15% domestic small caps, 25% international large caps, and 10% emerging markets.

My positions in REITs and commodities is virtually non-existent at this time because I enjoyed an approximate 115% return on such asset classes from 2003 through 2006 and slowly divested myself beginning in 2007 because I don't like it when a particular asset class' return starts to resemble a shuttle launch on a graph. I'm slowly reinvesting back into REITs after they suffered a 40% decline and will reinvest in commodities when it too suffers a 40% decline in the near future.

Finally, to reduce my investment expenses, I invest in index funds and ETFs. The foregoing garners me at least an additional percent annually if not more.

In summary, anyone who has invested in a broad spectrum of asset classes instead of chasing the hottest investment of the month will have achieved double digit returns during the time period in question and you don't have to be a Warren Buffet to achieve such returns.
6.3.2008 7:11pm
Gaius Marius:
Gaius Areius, I stated Bush's "domestic policies," without making the distinction between "monetary" or "fiscal" policies. Greenspan was not the Presidential signatory of all those Republican-Gang-Of-14 tax cuts for the wealthy, Bush POTUS 43 was. The incessant tax cuts together with the unncessary trillion dollar preppie-War in Iraq took the American economy down ... right out of Alfred Hitchcock's How-To-Balance-A-Budget 101. The only thing missing was Tippy Hedron and The Birds.

Are you a member of the Bar? Why don't you show some respect to Barack Obama, and stop the ad hominem whiny racial stereotypic name-calling. What do you know abotu Caliphs, anyway? Have you taken any classes or obtained an education in history-politics-religion of the Middle East? Barack Obama is as American as apple pie, grew up as American as any child of a single mother, worked hard to put himself through college and law school, and, unlike some people who come to mind, truly deserved to be named editor of Harvard Law Review -- because instead of trampling civil rights, he upheld them.

Get a life, and get a grip because ...

YOU ARE GOING TO HAVE TO DEAL WITH IT!

BARACK OBAMA, POTUS 44.


Mary, you are the one who referenced Lehman Brothers in your post as evidence that President Bush's policies stink. I merely pointed out that Lehman Brothers', and the financial sector's current woes, are primarily the result of Greenspan's lousy monetary policies instead of President Bush's fiscal policies. If you need further education on the distinction between fiscal policies and monetary policies, then perhaps you can ask your father, husband, or boyfriend to enlighten you.
6.3.2008 7:16pm
josh:
Gaius Marius

Dude, what the F is wrong with you? You didn't "merely point[] out that Lehman Brothers' and the financial sector's current woes are primarily the result of Greenspan's lousy monetary policy." Rather, you engaged in the typical ad hominem argument you always bring to these threads by ranting about "Hussein" and caliphates.

It's a shame the relatively fair-minded bloggers here allow you to continue at all. Your racist (and now sexist) comments demonstrate your lack of substantive argument.

Prof Lingren

please ban this guy. Review the archives of his comments and ax him. It's offensive.

As to your post, I have to agree with the majority of commenters that you're searching for causation amidst correlation. Nothing in the news reports of the day (or any of the analysts' quotes within) mention anything about any effect of the primary on the markets. (See, e.g., http://www.chicagotribune.com/business/ sns-ap-wall-street,0,4187589.story)

This post and Gaius Marius' comments add up to some pretty unfortunate smearing of a political candidate simply for disagreeing with his policies. Not the intellectual vigor most people come to this site for.
6.3.2008 7:38pm
LM (mail):
[LM is responding to a deleted comment, so the quotation here from that comment has been deleted as well. -- Moderator]


Since you obviously know that's not his name and he's not a Muslim, I have to ask if you don't object to dishonest smears of those you like, or if you just think one justifies the other? (Not to mention that you've been told by two VC bloggers to cut it out, and have had your comments removed by same.)
6.3.2008 8:21pm
Brian Mac:
Am I the only one that noticed MKDP refer to someone as "mentally ill"? I think this defamatory and discrimatory accusation needs to be referenced in every thread from now on, regardless of whether it's relevant or not. Sweet.
6.3.2008 8:25pm
Brian Mac:
corr:
"discrimatory"=discriminatory
6.3.2008 8:27pm
devoman:
Anyone interested in comparing investment returns for, say, the years 1993-2000 vs 2001-2007 might want to have a look at this chart which is adjusted for inflation and dividends.

Individual investment returns will vary depending on your portfolio, but if you were invested in domestic equities, you might ask yourself in which period you were likely to do better.
6.3.2008 10:09pm
Bart (mail):
I sold 80% of my holdings yesterday. The technicals started showing the Obama effect a couple days ago.
6.3.2008 10:09pm
frankcross (mail):
Gaius, great job on investing but you can't give Bush the credit. Your profits came from the real estate bubble and foreign investments. So it looks a little foolish for you to be using your returns to defend Bush policies.

I think the Pres has little to do with the stock market, but the data is very clear that markets have done better under Dem Presidents.
6.3.2008 10:43pm
Andrew J. Lazarus (mail):
Gaius, I work in the financial sector. Any number of our contacts are Obamacans this year.

Double digit returns total over almost eight years is pathetic. In constant dollars, even more so. Sure, if you cherry-pick your asset classes and time everything perfectly, you come out ahead. Some investors are good at that and some are lucky. The fact remains: the market and the economy do better under Democrats. Borrow-and-spend is not wise.
6.3.2008 11:45pm
Mary Katherine Day-Petrano (mail):
"Am I the only one that noticed MKDP refer to someone as "mentally ill"? I think this defamatory and discrimatory accusation needs to be referenced in every thread from now on, regardless of whether it's relevant or not. Sweet." ------->

I respectfully disagree with your take about my opinion of Hillary's conduct. Besides, I'm not sitting on any of her appellate cases like "AnnTM" sat on mine while making psychiatric diagnoses about my autism in Florida for use by her Federal Judge and the panels assigned to my respective cases.

DEAL WITH IT.
6.4.2008 12:35am
Mary Katherine Day-Petrano (mail):
For those looking for a different are invest in a Great political year: New write off -- purchase of up to $750 K in horses first put into service for their use in the '08 tax year. Sort of a remembrance of President Reagan, one might say.
6.4.2008 12:48am
Mary Katherine Day-Petrano (mail):
corr:
"different are invest" = different area to invest
6.4.2008 12:49am
Bad (mail) (www):
This just in: Jim Lindgren not voting for Obama. More to follow. A lot more.

Is it boring partisan snipe season again already?
6.4.2008 12:55pm