On this morning’s Morning Joe, Jim Cramer eats crow again: “I’ve got to admit, [Treasury Secretary Timothy] Geithner is more sophisticated than I first gave him credit for.”
Stablemate Erin Burnett concurs: “There’s no question, Geithner is a guy of real substance.”
Inasmuch as these two can be said to sum up the common wisdom of the equity markets, the equity markets and their gatekeepers, the financial advisors and institutional money managers of the world, are finally warming up to the Obama administration.
This shouldn’t come as too much of a surprise, although it can be beyond frustrating that it takes so long.
Market history is only a fair indicator of market futures. But a quick look at the history of the Dow in the transition years between the Hoover and Roosevelt administrations, the Nixon and Carter administrations, and the Reagan and Clinton administrations, reveals a remarkably similar pattern.
The performance of the Dow in the first weeks and months of each of these transitions to Democratic administrations was consistently abysmal, continuing broad, severe bear markets that began during the last year or years of the preceding Republican administration. But in each of these cases, somewhere between month 3 and month 6 of the new administration, a bull market emerged, creating broad and sustained rallies. A sustained Obama rally could now be emerging; time will tell.
There are two broad implications if this pattern holds true once again. 1) counter to the common wisdom, long-term Republican stewardship of the federal government is bad for equity markets (each one of the multi-term Hoover, Nixon and Reagan administrations ended with horrible bear markets); and 2) there is a knee-jerk bearish reaction to any Democratic presidential victory, which is historically unwarranted, and time after time unwinds into a sustained rally several months into the new administration.
Pass me my rose colored glasses. I’m beginning to think springtime is coming.