Is the Stock Market Like a Tracking Poll in Politics?

President Obama is definitely trying very hard to boost the nation’s confidence. After his massive economic stimulus plan failed to impress investors about the prospective of a speedy recovery, the President himself  came out today to suggest that stocks at the current level are cheap enough such that “buying stocks is a potentially good deal” (AP). And once again, stocks fell, though moderately comparing to yesterday’s huge sell off, with the S&P 500 index at its lowest level in more than 12 years. In fact, stocks dropped more than 30% since Obama won the election (US News & World Report), including the worst performance ever of the Dow on the day after the election and the inauguration day. Now I wonder how much confidence investors have in Obama and his plan

BTW, today Obama connected the daily fluctuation of the stock market to the political tracking poll.

Is there any similary between the two as Obama suggested? I didn’t see it. Did you?

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6 Responses to “Is the Stock Market Like a Tracking Poll in Politics?”

  1. Sean |  Mar 04, 2009 at 11:41 am

    I think he meant more that they are similar in that you can’t be reacting to the daily readings but need to look at their aggregate. If you start changing policy every time the tracking poll looks bad you’d never be able to accomplish anything. Although it’s also a little to hard make that work since, you would have to combine about 20 years of data until it starts looking good.

  2. Sun |  Mar 04, 2009 at 1:27 pm

    @Sean: That’s clearly what he meant, however I still have a hard time find the similarity between the stock market and tracking poll. The stock market reflects sentiments of tens of thousands market participants, how they see the overall economy and earnings of particular companies. The political tracking poll, while also indicating opinions of a large number of people, can be changed by a single people, the politician. The politician that the poll tracks can adjust his/her strategies to shift public opinion (isn’t it true politicians make changes on the fly once they notice a dip in the poll?), but in the stock market, investors can’t really adjust their own strategies to change the market. Maybe their own balance sheet, but not the market.

  3. Jay Currie |  Mar 04, 2009 at 3:01 pm

    It is not a bad analogy so long as you don’t get bogged down in the details. A political tracking poll gives a snapshot of voter intentions with respect to a particular politician or group of politicians. The S&P can be looked at as providing a similar snapshot of the perceptions of the overall market by participants in that market.

    But I think, Sun, you point is well taken. An index is about all the stocks which make it up. The proper political analogy would be a tracking poll of voting intentions towards the US Congress rather than the President.