Did Obama Cause the Stock Slide?

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Surprised by "Leftism"

Professional investors tend to be more conservative, so it's perhaps no surprise they're concerned. "The basic agenda of Obama's Administration is going to be more leftist and less centrist than I had anticipated," says John Merrill, chief investment officer at Tanglewood Wealth Management in Houston.

The impact of Obama's proposals are easy to see in particular segments of the market. In a speech to Congress on Feb. 24, Obama pledged a "substantial down payment" on health-care reform. David Chalupnik, head of equities at First American Funds, points out that, since then, stocks in the Dow Jones U.S. Health Care Providers Index (IHF) are down 16%. Health-care stocks had been a relative safe haven in the market, because medical spending tends to hold up even in recessions.

Investors aren't just expressing their political beliefs that taxes and regulations are bad for the economy. They're also making a practical calculation that they will hurt corporate bottom lines in the future. "What you're doing is lowering the profitability of these firms," says Bill Larkin of Cabot Money Management.

Short-Term Focus

There may be little right-leaning investors can do about liberal policies coming from the White House. "A majority of Americans elected this President on that platform," says Jeffrey Kleintop of LPL Financial Services. In any case, many in the market are more focused on short-term concerns—the recession and the credit crisis—than the long-term implications of Obama's policies.

"People are looking for a very quick fix," Larkin says. "It's the way the markets are. They like to have a problem resolved." Unfortunately, solutions from Obama, the Federal Reserve, or anyone else are slow in arriving. "It's going to take time," Larkin says.

On Mar. 3, Obama tried to get investors to take the long view. "You know, it bobs up and down day to day," Obama told reporters, referring to the stock market. "And if you spend all your time worrying about that, then you're probably going to get the long-term strategy wrong."

Missed Opportunities Early On

Obama and Geithner missed the chance—if they ever had such an opportunity—to "wow" the market and help restore some market confidence early in his Administration, Larkin says. So, instead, "this is going to be a long, drawn-out thing."

Investors will need to wait to see evidence that the stimulus package and measures to ease the credit crisis are really working. "The market is sitting back and saying: 'Show me the money. I'll believe it when it happens,'" Kleintop says.

Obama also tried to argue on Mar. 3 that stocks were a good buy. "Profits and earning ratios are starting to get to the point where buying stocks is a potentially good idea," Obama said, adding "if you've got a long-term perspective on it."

The problem for investors is the long-term outlook has never looked so fuzzy. With the economy deteriorating, the credit crisis continuing, and the Obama Administration still formulating a response, few feel confident enough about the future to buy stocks. It may be quite some time before investors find a change they can believe in.

Steverman is a reporter for BusinessWeek's Investing channel.