PRESIDENT Clinton, who has been criticized for his handling of United States foreign policy in such crises as Bosnia, Somalia, and Haiti, is also finding himself faulted for a domestic economic problem: the lackluster US stock market.
Since hitting close to 4,000 points on the Dow Jones industrial average on Jan. 31, the stock market has been largely heading south. Stocks have recouped some of their losses from earlier this year, with the Dow now back up around the 3,800 point level.
But to date, there has been no protracted rally, as often occurs during summer. The reason, according to a controversial new study by David Shulman, chief market analyst with investment firm Salomon Brother Inc., is that the stock market is mirroring, to a significant extent, the poor approval ratings of Mr. Clinton.
Strong markets are associated with strong presidents who have approval ratings of 60 percent or better, Mr. Shulman says. Weak markets are linked to presidents such as Clinton who have weak approval ratings of below 50 percent, he adds. Because Clinton's approval rating, now at around 43 percent, is expected to remain weak, ``the bull market is not likely to resume in the near future,'' Shulman concludes. ``Simply put,'' he writes in the study, ``leadership counts.''
For investors eager to profit from a rising market, Shulman's thesis hardly comes as cheery news.
``A president's popularity, or lack of it, can certainly be the catalyst for a particular phase in the market,'' says Gregory Nie, chief market technician for investment house Kemper Securities Inc. ``Historically, the market wants a president to do well.''
``In fairness, the market has been trying to do a little better in recent days,'' Mr. Nie says. ``Volume has been on the rise.'' But uncertainties over such issues as health-care reform and crime could put a damper on the market. Nie says he does not anticipate a sustained rally until fall.
In reaching his conclusion, Shulman looks back over 60 years of US presidents, starting with Franklin D. Roosevelt in 1933. Rising stock markets, he argues, invariably occur at the same time as high approval ratings (under FDR, Eisenhower, Kennedy, and Reagan, for example.) Slumping markets, such as those under Richard Nixon in 1973 and 1974, or Jimmy Carter in the late 1970s, come at a time of slumping presidential approval ratings.
SHULMAN'S thesis, which has captured a lot of attention on Wall Street, is not uniformly accepted.
``The market is having problems because there are problems with the underlying economic fundamentals,'' says Larry Wachtel, a vice president with investment house Prudential Securities Inc.
``Up until the past year, the market had been rising because interest rates were falling. Now, interest rates are rising. It's the rise in rates, not Clinton's popularity, that's directly affecting this market,'' Mr. Wachtel says.
``It is true that a strong president helps the market,'' Wachtel adds. ``But what's now happening is the matter of `good news' and `bad news.' The economy has been showing strength. For the stock market, that is unfortunately perceived as `bad news,' '' Wachtel says.
To many investors, a strong economy suggests that inflation will increase, which works against rising stock prices.
Shulman ``raises an interesting thesis, but I would argue that what's happening is the other way around,'' says James Stack, publisher of InvesTech, a market newsletter. ``The approval rating of a president mirrors what is occurring within the economy, including the stock market. The same forces that create market nervousness often create the low approval ratings. The most statistically relevant measurement is that for the first time in five years, we have an uptick in interest rates.''
Whatever the cause/effect relationship, Shulman's study links low presidential ratings with weak markets. That would suggest, some analysts say, that until Clinton's popularity rises, investors in common stocks should stay wary.