Markets are Hyper-sensitive to Political Rhetoric

• Investing

 Some things never cease to amaze me. Just when you thought we were about to settle in to a lazy summer of sideways markets, some fools just can't help themselves to be quiet. I am talking about politicians. And government officials. When are they going to learn that the markets are hyper-sensitive to not only what they do, but what they SAY?

As I wrote in last week's blog, earnings kick off this week and this will be a challenging time for the stock market to say the least. The market has risen on hope and optimism, and now we need the fundamentals to come in and supply the reason for this market movement. So all eyes are on earnings this week. So imagine my surprise when I woke up Monday morning, I saw the S&P futures down significantly and I thought to myself it was odd to see that sort of pre-earnings activity. What could have possibly caused this?

Little did I know, that as I was sitting in post-July 4^th traffic, that our Vice President Joe Biden was doing his best (worst) to cause fear in the markets! Somewhere, thousands of miles away in Russia, President Obama must have been ready to strangle his teleprompter! So what did Biden say that caused the futures to tank?

Obama administration "misread" how bad the economy was!

Why is this admission a bad thing? Because what this does is opens the door for yet another stimulus package! It is becoming apparent that the original $787 billion in fiscal stimulus is not having the intended effect on the economy that they had hoped for, and there are already rumblings from economic advisors that another stimulus package may be necessary. In fact, one of President Obama's own advisors, Laura Tyson, is already calling for a second stimulus package. Someone should remind her that this technically would be a third stimulus, but who's counting (beside the US taxpayer)??? 

So what should the administration do to avoid the unintended consequences of what they say?  

1.       Give the first fiscal stimulus a chance to work! Much of the complaints have been that the package has been too slow to roll out, so let's see what happens when the money does hit the economy. While I was not a fan of the original idea, what's done is done, so let's give it a chance to work BEFORE we start commenting on its effectiveness.

2.       Get everyone on the same page! There needs to be one clear message, and we shouldn't be getting conflicting reports from the president's own advisors. That's what the opposition party is for.

3.       No news is good news! The administration does not need to comment on every little blip on the screen. Everyone knows that when the administration speaks, the markets sell off. It is because of the fear of what might be said. They've set the course, now it's time to drive the ship known as our economy. But do it quietly.

The markets have had a wild ride so far this year, so I welcome the rest that a sideways market would bring. The markets need time to pause and to digest what is going on in the economy, and don't need to be constantly prodded to attention. 

And this starts with our politicians. For if they keep waking the markets with their comments, they're going to find that an un-rested market is a cranky one. And while Biden got lucky and was bailed out by earnings season and the stock markets ended the day positive, it could have been much worse.

So sshhh, keep it down, the markets are trying to sleep!