Lots of people were panicking on Monday about how much the stock indices fell after the bailout bill failed. For reference, voting started at 1:30pm. At that time, most people were expecting it to pass. The futures prices move faster, so they provide a better estimate of where prices are then the actual index quotes. The futures prices when the voting started were
S&P 500: about 1170
DJIA: about 10925
The prices at the close on Monday were 1131.5 and 10572, for drops of about 40 points and 350 points.
Today people were again expecting the bill to pass, and the voting started at about 1:00pm. At that time, the futures prices were
S&P 500: about 1155
DJIA: about 10775
The prices at the close today were 1105.75 and 10352, for drops of about 50 points and 425 points. The market went lower today than it did at any point on Monday (or any other time in the past 2 years).
So clearly, passing the bill was worse for the market than not passing the bill. Everyone who complained about the market dropping because the bill didn’t pass on Monday should be apologizing now. Empirical facts have proven you to be wrong.
Although to be more honest, this proves that legislating based on stock market movements is stupid. The stock market will move based on more factors than whether or not some bill is passed. Attributing all of Monday’s drop to the bill not passing (even though most of the drop was before the vote) never made any sense. And attributing all of the drop today to the bill passing also makes no sense. Remember this the next time that people claim a bill has to be passed to save the stock market.
Nor was it the reason for the depression in the 1930s, BTW. The bill was necessary because of a growing credit crisis. The stock market was only reflecting that. Yesterday’s late day drop in the market was related to the horrible employment figures that were released yesterday. The horrible employment figures, as well as the fiscal problems that states are now having, are a reflection of the growing credit crisis. Anyone who was claiming the bill had to be passed to “save the stock market” apparently does not understand anything about the financial crisis or doesn’t really care to.
Based on trailing earning the S&P 500 is trading at 21 times earnings. With prices at at 21 times earnings the uS markest are trading at a 50% markup to other global markets and the historic norm, which is to trade at 12 to 14 times earnings.
Earnings are also projected to decline in the coming year which would strecth this multiple even further if prices were simply to remain at current levels.
If our government actualy gave a crap about small investors it would make an effort to educate people about this fact, instead of leaving the educating to the likes of CNBC and raiding the treasury in an effort to prop prices at dangerously high levels.
Think Alan Greenspan and what happened to him when he dared mention “irrational exuberance”. And thats the rest of the story.