Did the market rally Friday afternoon because Sen. Paul Wellstone, D-Minn., one of the nation's most honest and useful public servants, died in a plane crash?
You won't find any analysts making this case on CNBC this afternoon, on Wall Street Week With Fortune tonight, or in Barron's tomorrow. Repulsive as it may be, I can't help but think that it did. The Dow rose steadily after the news of the crash came over the wires, eventually closing up 127 points on the day.
For proof that it was Wellstone's death and not any other news that moved the market, just pull up an intra-day chart on the Dow. You'll see that it was meandering around lazily for much of the day, down 30 in the morning, up 40 in the afternoon. At 1:30 it was basically flat.
All the news that had the potential to move the market broke in the morning. Some was negative: Cigna had an awful quarter, and orders for durable goods fell more than expected. But some was positive: Consumer sentiment improved slightly, and housing starts were strong. The usual push-me-pull-you. Stocks in Europe had closed down.
Friday afternoons can be volatile, especially if it's a day on which options expire. This wasn't one of them. By 1:30, pretty much all the day's market-moving news had been incorporated into stock prices.
After 1, bulletins started to cross the wires describing a small plane crash, without identifying its occupants. At 1:31 came the first word that Wellstone was likely on board. TV news channels jumped on the news. At 1:50, the Associated Press reported that Wellstone had died. Now look at that intra-day chart of the Dow again.
Throughout the rest of the day, Reuters, the AP, CBS MarketWatch, et al., never alluded to the horrific news when describing the market's actions. As they do on every other day, market reporters called analysts for quotes. "The market's mood is one of more resiliency right now," Brian Belski, market strategist at U.S. Bancorp Piper Jaffray, told Reuters. "People are in more of a buying mood now." Peter Boockvar, equity strategist at Miller Tabak and Co., told CBS MarketWatch that"people are still willing to buy on dips. A lot of negatives have been built into this market, a lot of difficult news was discounted."
In other words, the usual platitudes we hear every day. Nobody really knows why the market moves in a particular direction on a given day or in a given hour. You can only guess, based on what market participants are saying—or, in this case, based on what they're not saying.
Why would Wellstone's death boost the market? Wall Street didn't rally because Wellstone was the most left-wing member of the Senate. The reaction would have been the same had it been any incumbent Democratic senator who was in a close fight for re-election.
When the news broke, Wall Street traders did what they always do in such events: start calculating. The instant conclusion: Wellstone's death means the Republicans have a better shot at getting back the Senate.
Traders and investors condition themselves to make hair-trigger moves on news breaks. Usually this is done without asking questions or completing careful analysis. When the Fed reduces interest rates, they buy bank stocks. If a war starts against Iraq, they will buy defense stocks. If Saddam steps down and flees Iraq, the price of oil will plummet. If there were another massive al-Qaida attack on the United States, they'd dump the broad indices.
And a significant proportion of investors believes that if Republicans control of the Senate it is good for stocks.
Why? With Republicans in control of both houses and the executive, one might expect action on a bunch of corporate-friendly measures—from asbestos liability to terror insurance, from tort reform to lower corporate-income taxes. That rapid calculation—Wellstone's death is good for corporate America—was worth 127 points on the Dow. It was a quick reaction. And those who sold stock this afternoon can rest assured that it was probably a wrong reaction, because there's no actual evidence that a Republican Senate is better for investors.