Obama Approval Ratings versus Stock Market Direction - Big Picture

Today's winner : Obama Ratings

There are many variables that affect the stock market as whole. Let’s talk about some of the Major one's. 

1. Interest Rates – Decision by Federal Reserve during the FOMC meetings.

2. Tax Cuts - Government decision to cut or raise Individual and/or Corporate Tax rates.

3. U.S Employment or Job Growth.

4. War, Terrorist Attacks, Regional Instability for U.S allies and Foreign Policies.

5. Market Regulations affecting the Core Economy.

How these are related to Political decisions, we will come to know shortly.  Let’s look at the Stock Market Direction; I’ve chosen Dow Jones because it represent the Biggest companies in the world across every Business area in the U.S and world Economy.

The Dow Jones had dipped to the lowest point in decades following the financial crisis around March 2009 when we hit the lowest point 6,469 which represented extreme difficulties with the Financial World. Most of the too big to fail companies like Bank of America, Citi Group, and almost every Regional & National bank was under the risk of going belly up. The FOMC under the direction of newly formed U.S Government under Obama and the Henry Paulson initiated major policy changes and rescue efforts negotiating with the more Stable Players to take over the struggling financial giants.

The U.S government performed various austerity measures like reducing interest rates, issuing more Government debt, buying toxic mortgage assets, and other deflationary m to revive the ailing economy.

In addition to the austerity measures the U.S Government, under Obama, made policy decisions affecting job growth; like Jobless Benefits and Incentives for companies who hire. Well some of these measures have not been very fruitful to spur job growth, but they did increase the coffers of large companies who took in the incentives reflecting in their Balance Sheets as Profits.

So most of the decisions affecting the Stock Market have been directly influenced by Obama's New Government which came into power around the end of 2009.

If we try to track the Dow Jones performance starting in Dec 2009 until now, we can see that we hit a new low in March 2009 and made a new high around March 2010 (Dow Jones: 11,258). Let us watch this following chart which tracks the job approval rating for the same period of time. We can see that Obama's approval rating peaked around March 2009 and started dipping down when Market direction was in the Recovery Mode.    

When th Dow Jones made a new high around March 2010, Obama's approval rating was at its lowest point of 47 with a 2 point spread against the disapproval rating. So far we can see that the negative correlation between two charts or we can say that Obama's approval rating is inversely proportional to the stock market direction.

Quite recently the President's approval rating has improved after tax cuts, poll results, increased job growth, less debt issued by the government, and the end of the War in Iraq.  The last few FOMC meetings were focused on keeping the Interest Rates stable and/or considering aspects of increasing them in near future. 

If history is right, any of the policies (Fed policies) or Geo Political changes (Middle East crisis, Afghan War) will and is proving to affect the direction of the overall Market.

Quite recently the U.S economy showed some bullish signs of recovery in job growth: companies paying back money borrowed from the government, increased hiring, positive GDP growth,  increasing Inflation (seriously that’s good, look at China and India),  Increasing Dividends,stable market regulations, and effective market speed breakers put on by SEC helping avoid sudden crashes in the Financial Markets.

All of the above add up to a positive job approval rating for our President crossing the 50 mark (please move the cursor on the approval rating chart to get the current rating). We also noticed that the recent Middle East crisis will require major changes in our President's approach to Foreign Policy. 

If the trend we saw in last few years of our current government continues, we will see another dip in the Stock market. I think it’s time to take some Profits and Raise Cash! because there would some major policy changes in Middle-east that will cause fluctuations in Oil prices, New Friends and see-saw Stock Market , or even people dumping stocks to head back to hedging instruments like Gold and Bonds. I Hope the events will be resolved in coming months for a More stable and Growing world Economy

Note : This is not a politically motivated article, i am trying to show how Political Decisions can affect your Individual Portfolio more than the fundamentals of a company and its Business. It always helps to see the Big picture before venturing your precious funds into the Financial Markets.