Wall Street has loved President Obama for most of the last 6 years, just look at this chart to prove the point.
The market has produced a fortune for Wall Street and their investors. Free money from the Federal Reserve Quantitative Easing gave Wall Street an aggressive buyer of US Government bonds and mortgages. The Fed balance sheet is now in excess of four trillion dollars and for now the Fed has indicated they have finished their buys.
The real beneficiary of all this wealth creation was President Obama. Some Americans saw their net worth increase and by association have given the credit for all the new wealth to President Obama. In fact the rally in the markets has been dubbed the “Obama Rally.” The logic has been if people’s wealth is growing, they will overlook all the rest of the bad things going on in the country. I believe the markets are telling us with the most recent declines that the good times may be over, the “Obama Rally” has come to an end.
The chart below shows what has happened in the last 4 weeks.
Not only has the stock market declined, we have seen a significant decline in the price of oil and other commodities including the price of gold. Interest rates are near their all time lows and yet the IMF now predicts that American GDP for this year will be about 1.5%. The IMF just reported that China has replaced America as the largest economy in the world. Why did this happen? Simple, look at the same number the IMF looks at — GDP. America over the last 6 years according to the World Bank grew 5.7%, or less than 1% per year. China for the same period grew 44.3%, or 7.38% annually. This means that in about three quarters of one year China grew more than America did in the last 6 years.
This past summer with the beheading of American journalists the American people became disenchanted with the president and his poll number proves this dissatisfaction. Wall Street is now looking at America in a different way and in turn they are looking at Obama differently. Many Wall Street pundits have various reasons why the sell-off is taking place, I believe they are beginning to believe that Americas best days are behind us and that President Obama has reached his goal of leading from behind, China is now the leader in the world.
Only time will tell if what is happening in the markets is just a minor correction or the start of a major sell-off. One indicator to watch is the 200-day moving average of the Dow Jones. We are currently at that average support level, if we break through this support level then we could go to 16,330. If we break this then we will have to test the 15,500 level. If these support levels are penetrated then look for Wall Street to become more critical of Obama.
When people start losing money they will look to someone else to blame, and President Obama will get that blame just like he got all the glory. The loss of trillion’s of dollars makes people think differently.